Salary sacrifice and maxing pension contributions

Madrick

Question
does the employers % contribution count towards your own monthly pension allowance?

For example
someone earning £30k pa
£2.5k per month

Employer contributes 15% through salary sacrifice to pension
The Employee contributes 25%

So 30% to pension £750 

Remaining gross salary £1,750
After tax and national insurance 
£1,500 take home
Staying within minimum wage rules

So the employee could then start a seperate pension 

And could then only pay £1400 in.. 
With added tax relief would be £1,750

The 15% the employer makes counts towards the total? 

So you cannot exceed your gross pay figure, as pension contributions, regardless of whether from employer or employee count towards total allowance? 

Is this correct

Dazed_and_C0nfused

When looking at what you can contribute for tax relief purposes (rather than annual allowance purposes) you ignore employer contributions.

In your example 100% of the normal contributions are employer contributions.

Salary sacrifice means you aren't contributing anything, you are agreeing to a reduced salary in return for your employer contributing more to your pension.  That's why you don't get any pension tax relief as they are employer contributions.

Something has gone awry here as 15 + 25 = 40, not 30.

For examplesomeone earning £30k pa
£2.5k per month

Employer contributes 15% through salary sacrifice to pension
The Employee contributes 25%

So 30% to pension £750 

Albermarle

Also there is no monthly pension allowance , it all works on an annual/tax year basis .

So for example instead of contributing to a separate SIPP monthly , you could for example make two lump sum contributions during the year. As long as you do not contribute more than you earn in the tax year , then does not matter when you actually add it to the pension.

Madrick

Something has gone awry here as 15 + 25 = 40, not 30.

Sorry
combination of fat fingers and a mobile phone.
15% from each in my example
Total 30%

Madrick

So in my example above

The salary sacrifice is 30% of original salary

But for the purposes of paying extra into a pension,

The gross monthly  pay is no longer £2.5k per month
but now £1,750 per month
£1,500 take home


Can this whole nett amount of £1500 be paid into a pension, either monthly or as an annual lump sum? 

£1500 plus £375 tax relief so £1,875 per month

If so, this is £125 more than the gross salary of £1,750

Is this correct as the extra comes from the portion of wages where no tax is payable 

So in this example, you could pay in more in total than your gross salary? 

£750 salary sacrifice
£1875 extra pension payment

So £2,625 monthly pension
Where total gross pay was originally £2,500

 

Dazed_and_C0nfused

If your only pensionable earnings are £21,000 then you can only pay £16,800 into a relief at source pension.  Which will have 25% (£4,200) added by the pension company (courtesy of HMRC) giving you a gross contribution of £21,000.

The fact you haven't paid £4,200 in tax is immaterial.

jamesd

You can't exceed your after salary sacrifice gross pay with personal contributions.

And the combined value of your salary sacrifice contributions, including any employer portion, plus your personal contributions, must be within the 40k annual allowance plus any unused allowance from the previous three tax years.

You must satisfy both requirements.

Strictly, you can exceed the annual allowance plus carry-forward and pay the annual allowance charge. And strictly if you could find a scheme to allow it you could make personal payments with no tax relief, or exceed pay and claim a refund of excess contributions lump sum from the pension firm after the end of the tax year.

Madrick

Dazed_and_C0nfused said:

If your only pensionable earnings are £21,000 then you can only pay £16,800 into a relief at source pension.  Which will have 25% (£4,200) added by the pension company (courtesy of HMRC) giving you a gross contribution of £21,000.

The fact you haven't paid £4,200 in tax is immaterial.

Thanks for that

Just trying to max out my pension contributions in the last 5 or 6 months before taking early retirement, without falling foul of any rules or exceeding allowances

Managing to live on savings of  £1200 total spending  per month, for self, grown up son and cat

Albermarle

but now £1,750 per month
£1,500 take home

How much tax you pay depends on your own personal circumstances. For example you could have a Benefit in Kind which would increase the amount you pay .

However maximum pension contributions are calculated the same for everybody , as explained above .

So in fact your actual net pay is not relevant .

Madrick

Thanks all

So I was correct in my original thinking and the way my spreadsheet calculates my additional investments

It's just I kept seeing £100-£150 over, but that's the portion not paying tax on

Cheers