Pensions, AVCs and tax relief

kidwell25

I’m 42, work for a university, have an “official” salary of just over £53K (though this is subject to salary sacrifice) and my contribution to my work pension scheme is 10.6%. It is a net pay arrangement, with the pension contribution being deducted before tax is applied, so I don’t have to claim any tax relief.

My aspiration is to retire as early as possible and I am now considering making a regular monthly AVC. I’ve confused myself about my tax banding situation, as my salary isn't very far into the higher rate bracket. Am I currently receiving tax relief at 40% or 20% on my pension contribution (or both?) And if I decide to make AVCs what level of tax relief would this attract, and would this depend on the size of the AVC?

Grateful for advice as our payroll manager hasn’t been able to answer this for me(!)

Dazed_and_C0nfused

Your salary is irrelevant.

You mention salary sacrifice, which is where you don't contribute to a pension, your employer contributes more in return for paying you a lower salary, but then net pay.

Which method is being used for the 10.6% you refer to?

And do you have any other sources of taxable income?

kidwell25

Sorry if I was unclear - I find everything to do with pensions confusing!
The pension scheme has employee contribution of 10.6% of salary. My employer operates salary sacrifice, so yes, they effectively make that contribution for me (which is itemized as a deduction on my payslip). Ignore what I said about "net pay" (which I dug out of an old email that I think possibly predated the introduction of salary sacrifice). Basically just wanted to get across that I don't have to claim any relief back in a tax return.
I don't have any other taxable sources of income.

Dazed_and_C0nfused

As you are sacrificing 10.6% or your salary it means your P60 would show taxable pay of £47,382.

So any additional contributions (whether by salary sacrifice or relief at source) will only attract 20% relief.

jamjar92

@kidwell25 So your salary is £53,000 notional, which you pay 10.6% to your pension provider (DB?), and you want start paying AVC's via salary sacrifice is what I understand what you want to do.

So after pension payments are taken your salary will be £47,382, so you are BRT (basic rate tax payer).

So for each £100 you salary sacrifice into your AVC pot will cost you (from your net pay  monthly figure) is £68.00

If you was a HRT (high rate taxpayer) for each £100 into your AVC ot will cost you £58.00 from your net pay monthly figure.

So decide what amount you want to pay each month, start saving.