Salary sacrifice 40% or 20% tax

slider09

Hi
Currently have two pensions, one through my current employer which is a salary sacrifice and a second one from a previous employer from 25 years ago which I make additional monthly contributions to. 

If I’m a higher rate tax payer but my salary sacrifice reduces my sacrificed salary to under £50k, am I classed as standard or higher rate tax payer?  What tax relief can I claim on my second pension that I make monthly contributions into?

Thanks

MallyGirl

is there a reason you don't just sal sac more to the current one to gain the NI saving too?

slider09

MallyGirl said:

is there a reason you don't just sal sac more to the current one to gain the NI saving too?

I assumed the tax relief on the second pension would be greater than the saving in NI if I contributed more on the sal sac pension?  Is that not the case ?

MallyGirl

when you sal sac you save tax and NI, when you contribute to a pension you only save tax.
For everything you sal sac to get down to £50k you won't pay 40% tax and 2% NI  - saving of 42%
For every extra bit you sal sac under the £50k you won't pay 20% tax and 12% NI  - saving of 32%
Contributing to a personal pension when you have sal sac'ed under £50k only gets the 20% tax bonus - you won't get the extra 20% back via the tax man if you haven't paid 40% tax

Albermarle

As above , you should stop contributing to the other pension and make all contributions via salary sacrifice .
Then you can leave the other pension alone as it will remain invested as it is now , or transfer it in to your current employer pension . However this is a secondary issues compared to making the NI savings .

slider09

Thanks both. 

Quick Calc shows I’ll be around £60 per month better off if paying the same (inc tax the tax relief) into my Sal sac pension scheme. 

My other pension is a standard life with profits scheme taken out in 1995, 4% guaranteed growth on one half and 0% guarantee on reductions on the other. Only allows 25% to be withdrawn tax free once retired.  

Suppose next question is should I transfer this pension to my current employer scheme?

MallyGirl

the guarantees might make that difficult or the wrong choice but that is far outside my area of understanding I am afraid.
Good news on the £60 - maybe don't be better off, instead contribute that little extra via sal sac too?

Dazed_and_C0nfused

slider09 said:

Thanks both. 

Quick Calc shows I’ll be around £60 per month better off if paying the same (inc tax the tax relief) into my Sal sac pension scheme. 

My other pension is a standard life with profits scheme taken out in 1995, 4% guaranteed growth on one half and 0% guarantee on reductions on the other. Only allows 25% to be withdrawn tax free once retired.  

Suppose next question is should I transfer this pension to my current employer scheme?

Hopefully it's just terminology but there is no pension tax relief with salary sacrifice.

If you sacrifice say £5,000 then you have £5,000 less salary and your employer makes an employer contribution of £5,000 into your pension. There is no tax relief added to that, you have £5,000 in your pension fund.

But you don't have any tax or National Insurance to pay on the £5,000 sacrificed.

Marcon

slider09 said:

Suppose next question is should I transfer this pension to my current employer scheme?

Depends what you hope to achieve by doing so - and if the value of your Standard Life pension is £30K or more, the fact it has some sort of guarantee means you'll be required to take financial advice before SL can agree to transfer it to your current scheme.

slider09

Marcon said:

slider09 said:

Suppose next question is should I transfer this pension to my current employer scheme?

Depends what you hope to achieve by doing so - and if the value of your Standard Life pension is £30K or more, the fact it has some sort of guarantee means you'll be required to take financial advice before SL can agree to transfer it to your current scheme.

Transfer value is around £56k with the bonus. When I spoke to SL about the possible transfer they didn’t mention anything about seeking financial advice; just asked who I would be transferring too.