Salary sacrifice vs auto enrollment

btcp

Albermarle said:

If you are both higher earners and paying 40% tax it might be related to that .
As you contribute by salary sacrifice , then you get higher rate tax relief automatically , as you do not pay any tax on your pension contribution in the first place .
If he is on a Relief at source scheme , the pension provider will add basic rate tax relief but he has to claim back the higher rate relief from HMRC . Does he do that ? Hopefully he does or he has been losing a few grand every year.

he does not.... he actually earns a bit less than 100k, but higher earner for tax purposes. how can he claim the higher rate relief? people probably don't submit SA just for that?

AlanP_2

btcp said:

Albermarle said:

If you are both higher earners and paying 40% tax it might be related to that .
As you contribute by salary sacrifice , then you get higher rate tax relief automatically , as you do not pay any tax on your pension contribution in the first place .
If he is on a Relief at source scheme , the pension provider will add basic rate tax relief but he has to claim back the higher rate relief from HMRC . Does he do that ? Hopefully he does or he has been losing a few grand every year.

he does not.... he actually earns a bit less than 100k, but higher earner for tax purposes. how can he claim the higher rate relief? people probably don't submit SA just for that?

Call them, tell them the GROSS pension conttribution, job done.


They adjust tax code to effectively give you the additional relief through PAYE or via direct payment to you if necessary.. You can claim for previous years I think so would need to discuss that on the call.

btcp

MallyGirl said:

given that sal sac saves you NI and no other method does then it won't be possible for you to achieve complete parity

If not a complete parity but how to get closer? NI is not a huge portion in it I assume. Does he need to increase contribution from 20% to 40%? The goal is to save more in pension as the retirement is in 20 years and he doesn’t have much in. 

hugheskevi

btcp said:

MallyGirl said:

given that sal sac saves you NI and no other method does then it won't be possible for you to achieve complete parity

If not a complete parity but how to get closer? NI is not a huge portion in it I assume. Does he need to increase contribution from 20% to 40%? The goal is to save more in pension as the retirement is in 20 years and he doesn’t have much in. 

He is not contributing 20%. His contribution is £8,752. It is unclear whether this is via net pay arrangement or relief-at-source. If it is relief-at-source then the contribution will be grossed-up to £10,940. So his contribution rate is somewhere between 8.8% to 10.9%.

How to get closer to parity with yourself depends on whether the existing contributions are via net pay arrangement or relief-at-source, and whether additional contributions would be via net pay arrangement or relief-at-source.

The simplest would be if £8,752 is via net pay and so would additional contributions. In that case simply increase contributions to £20,000. You would have a slightly higher take home figure due to the salary sacrifice advantage, but only by about £400.

If either existing or additional contributions would be relief at source the figures are slightly more difficult (but not much) and higher rate relief would need to be claimed. The end result would be the same as under net pay arrangement, ie, with £20,000 going into his pension and his take home pay around £400 lower than your take home.

Albermarle

AlanP_2 said:

btcp said:

Albermarle said:

If you are both higher earners and paying 40% tax it might be related to that .
As you contribute by salary sacrifice , then you get higher rate tax relief automatically , as you do not pay any tax on your pension contribution in the first place .
If he is on a Relief at source scheme , the pension provider will add basic rate tax relief but he has to claim back the higher rate relief from HMRC . Does he do that ? Hopefully he does or he has been losing a few grand every year.

he does not.... he actually earns a bit less than 100k, but higher earner for tax purposes. how can he claim the higher rate relief? people probably don't submit SA just for that?

Call them, tell them the GROSS pension conttribution, job done.


They adjust tax code to effectively give you the additional relief through PAYE or via direct payment to you if necessary.. You can claim for previous years I think so would need to discuss that on the call.

OP - Assuming your friend does claim the higher rate relief , just be clear that he will get as a tax rebate or more likely as an increase in his tax allowance so he will pay less tax.
So it will not go directly into his pension but in his pocket .

btcp

So after some investigation and looking at payslips and pension statements, the employer takes monthly pension contribution after tax, sends to the pension provider, and pension provider adds 25% to the pension. What number HMRC needs to get in order to calculate additional tax relief - total amount that ends up on the pension account or the amount from the payslip? 

Albermarle

They need the gross payment , which means the contribution + the tax relief during the tax year 19/20 .
Maybe they will also agree to look back over previous years so he should have those numbers handy as well .
It certainly seems like he can expect a rebate for 19/20 and maybe for some previous years if he is lucky .
For 20/21 they will adjust his personal tax allowance , on the assumption he will make the same pension contributions as the previous year and he should see his take home pay rise. 

btcp

Albermarle said:

They need the gross payment , which means the contribution + the tax relief during the tax year 19/20 .
Maybe they will also agree to look back over previous years so he should have those numbers handy as well .
It certainly seems like he can expect a rebate for 19/20 and maybe for some previous years if he is lucky .
For 20/21 they will adjust his personal tax allowance , on the assumption he will make the same pension contributions as the previous year and he should see his take home pay rise. 

Thanks a lot, it’s very helpful.