Allocating pension contributions amongst a couple

jamesd

Bemma said:

So basically there's very little in it, unless you can optimize NI or receive child benefit (* see below)

Optimisation can't be complete but if it was, it'd be a 41.6% gain over her making the contributions. 17.24% better without optimisation is pretty good too.

zagfles

BuildTheWall said:

jamesd said:

If you only get 2% NI saving you're not optimising fully because you can get 12% on much of the money. NI is worked out for individual pay periods, income tax annually. Concentrate your sacrifice into as few pay periods as possible and most of the sacrifice will save you 12%.

True, need to get the timing right. Will start doing that from Feb. 2 months of higher contributions for this year and 2 months of next year, so back to normal contributions from June. 

This is a good idea but a few things to bear in mind. If your income varies at all, eg bonus/overtime, avoid making the high sal sac in months when your pay is high eg you get a bonus. Best contribute more when pay is low. Make sure you still make enough contributions each month to get max employer contributions. You can't sal sac below min wage, about £18k or £1500 a month on full time hours. Understand the way PAYE tax works to help with budgetting, for instance you might overpay tax early in the year and get it refunded later.

Bemma

Yes optimisation cannot be complete, as I increase my SS my payments fall into row 4, then row 3 and then row 5.

(Apologies I didn't make myself clear - it was some of your posts that made me understand NI optimisation). I was trying to make the comparison with the HR tax payer paying 15% tax and the BR tax payer 0% tax on withdrawal.  With optimisation 1.7708/1.4706 = 1.2041 (20.4%) benefit, without there's nothing in it.