Balance between Pension/S&SISA/cash

HCIMbtw

noclaf said:

tebbins said:

Student loan repayments are on your gross salary, before pension contributions unlike income tax.
Using MSE income tax calculator, with a Plan 1 loan and upping your pension contributions to 26%, would leave you with £2.7k per month take home.

Edit: I did not know salary sacrifice was treated differently, every day's a school day.

Hi Tebbins,

So my pay setup is slightly complicated in that my base is actually circa £57,600 and I then receive an allowance on top that takes my standard gross pay(not including bonuses) to just under £63k. The allowance can be used to buy various benefits or taken as cash, I take the vast majority as cash and in fact I will be taking all as cash for next year.
The pension % via salary sacrifice is based on the £57.6k rather than the gross £63k including allowance. That's just how my employer have setup the pension. I also received a pay rise in September.
So as long as my taxable pay come March 2023 payslip is £50,000.00 or less would that mean I would still be eligible(or my wife actually) for full child benefit?
Additionally, would I need to complete a annual self assessment if we claim for child benefit? I've never completed one in my life so thought I'd ask

Am in a similar boat to yourself, albeit a bit earlier life with slightly less in pension

Yep would need to complete a self assessment tax return, doing the same myself for the first time this year 

Earn just over 60 before tax and ensure pension contributions take me down to just about £49,800 ish so we can claim child benefit... only curve ball is if I happen to earn a decent bonus.. which is very rare, but possible.. would kinda scupper my plans and would end up having to pay back some child benefit I assume

Anyone any advice on how to deal with that as a potential issue? should I set up an emergency SIPP 

Was also interested in the comment regarding NI credits for spouse, assume she wouldn't need to claim those while getting statutory maternity pay? 

jamesd

Since you're a higher rate tax payer there's an additional tweak to use: pay as much of your salary sacrifice as you can by sacrificing in a few months down to minimum wage. Because NI is calculated for individual pay periods this will save you the 12% instead of 2% employee NI on the part that ends up being deducted from basic rate range income in those months. That's more take home pay for you on the same total pension payment. Income tax is on the whole year so no difference in that from doing high/low.

If it does turn out that you can't handle going down to 50k every year you can mix high years and low years, so some years you get full CB and other years not.

The combination of salary sacrifice, CB and lower university loan repayments make pension a very clear winner in your case.

The normal ISA has the advantage of accessibility at any age, allowing you to access it before pension money and retire earlier. The lifetime ISA doesn't have this advantage and with the many benefits you're getting fro the pension you might find it useful to draw from the LISA first if pension contributions prove troublesome.

Mortgage has been partly mentioned and it's quite important. One of the cheapest ways to repay a mortgage is with the tax free lump sum from a pension. This is not available on the portion of a pension above the lifetime allowance so a maximum of about £250k per person is available this way. Meanwhile, making your mortgage term as long as possible will decrease the monthly required payments and let you get the pension gains on more money without stretching the budget. It'll mean more interest but also more total gain.

noclaf

jamesd said:

If it does turn out that you can't handle going down to 50k every year you can mix high years and low years, so some years you get full CB and other years not.

I think this sounds like a solid approach for myself, I don't think il be able to manage 50k every year but I never say never...if I can do it then I will do...short term sacrifice and all that esp for the next year or two at least.

Just to check is the amount we would need to go down to £50k dead on or £50,099.00?

noclaf

HCIMbtw said:

noclaf said:

tebbins said:

Student loan repayments are on your gross salary, before pension contributions unlike income tax.
Using MSE income tax calculator, with a Plan 1 loan and upping your pension contributions to 26%, would leave you with £2.7k per month take home.

Edit: I did not know salary sacrifice was treated differently, every day's a school day.

Hi Tebbins,

So my pay setup is slightly complicated in that my base is actually circa £57,600 and I then receive an allowance on top that takes my standard gross pay(not including bonuses) to just under £63k. The allowance can be used to buy various benefits or taken as cash, I take the vast majority as cash and in fact I will be taking all as cash for next year.
The pension % via salary sacrifice is based on the £57.6k rather than the gross £63k including allowance. That's just how my employer have setup the pension. I also received a pay rise in September.
So as long as my taxable pay come March 2023 payslip is £50,000.00 or less would that mean I would still be eligible(or my wife actually) for full child benefit?
Additionally, would I need to complete a annual self assessment if we claim for child benefit? I've never completed one in my life so thought I'd ask

Am in a similar boat to yourself, albeit a bit earlier life with slightly less in pension

Yep would need to complete a self assessment tax return, doing the same myself for the first time this year 

Earn just over 60 before tax and ensure pension contributions take me down to just about £49,800 ish so we can claim child benefit... only curve ball is if I happen to earn a decent bonus.. which is very rare, but possible.. would kinda scupper my plans and would end up having to pay back some child benefit I assume

Anyone any advice on how to deal with that as a potential issue? should I set up an emergency SIPP 

Was also interested in the comment regarding NI credits for spouse, assume she wouldn't need to claim those while getting statutory maternity pay? 

The self assessment part puts me off, is there anyway to avoid it? Also would interest generated on current/savings accounts (albeit pretty rubbish on my cash accounts at present) count towards my annual income?

Albermarle

noclaf said:

HCIMbtw said:

noclaf said:

tebbins said:

Student loan repayments are on your gross salary, before pension contributions unlike income tax.
Using MSE income tax calculator, with a Plan 1 loan and upping your pension contributions to 26%, would leave you with £2.7k per month take home.

Edit: I did not know salary sacrifice was treated differently, every day's a school day.

Hi Tebbins,

So my pay setup is slightly complicated in that my base is actually circa £57,600 and I then receive an allowance on top that takes my standard gross pay(not including bonuses) to just under £63k. The allowance can be used to buy various benefits or taken as cash, I take the vast majority as cash and in fact I will be taking all as cash for next year.
The pension % via salary sacrifice is based on the £57.6k rather than the gross £63k including allowance. That's just how my employer have setup the pension. I also received a pay rise in September.
So as long as my taxable pay come March 2023 payslip is £50,000.00 or less would that mean I would still be eligible(or my wife actually) for full child benefit?
Additionally, would I need to complete a annual self assessment if we claim for child benefit? I've never completed one in my life so thought I'd ask

Am in a similar boat to yourself, albeit a bit earlier life with slightly less in pension

Yep would need to complete a self assessment tax return, doing the same myself for the first time this year 

Earn just over 60 before tax and ensure pension contributions take me down to just about £49,800 ish so we can claim child benefit... only curve ball is if I happen to earn a decent bonus.. which is very rare, but possible.. would kinda scupper my plans and would end up having to pay back some child benefit I assume

Anyone any advice on how to deal with that as a potential issue? should I set up an emergency SIPP 

Was also interested in the comment regarding NI credits for spouse, assume she wouldn't need to claim those while getting statutory maternity pay? 

The self assessment part puts me off, is there anyway to avoid it? Also would interest generated on current/savings accounts (albeit pretty rubbish on my cash accounts at present) count towards my annual income?

HMRC are slowly moving away from self assessment and more people are using their on line personal tax account , or just communicating with HMRC when issues crop up .
Although in my opinion SA was/is better.
A basic rate taxpayer can earn up to £1000 in interest tax free . A higher rate taxpayer can earn up to £500.
Presumably if you sal sac below £50K , you can earn up to £1000 , although I am not 100% sure.

aroominyork

Am I the only person who thinks salary sacrifice is a loophole that should be closed? You 'pretend' to earn less than you actually do in order to save NICs (and maybe to bring you down a tax bracket). If HMRC are happy for SIPP contributions not be be subject to NIC they should make that official, but SS is just a loophole that 1) only some companies offer and 2) can have unintended consequences (eg not being able to get a loan/mortgage becasue your salary 'appears' too low).

MX5huggy

No you’re not, it’s completely random who can save the 12% NI. Then the fact you have to keep your Salary above minimum wage penalises the low paid, this rule really frustrated me around tax free child care I was not able to salary sacrifice to get child care tax free because I did not earn enough yet I was still paying 6 to 7 hundred a month in child care. 

Student Loan repayment is also “dodged” by SS.
SS is great I’m using to the full while I can.

Albermarle

It is just that - a loophole - where pension contributions are concerned anyway .
I think in the beginning the losses to the Exchequer were not that significant , but now they are so will presumably get closed at some point.

noclaf

My taxable pay for 21/22 tax year is already around £29k so I think it will be quite a squeeze to keep my remaining taxable pay within £20k for Nov21-Mar22. Unfortunately I didn't make enough use of my sal sac in April when I received a bonus and deferred back-pay that got hit with proportionally higher tax/NI/student loan.

On the topic of SS, is it therefore an 'unfair' advantage for higher rate tax payers only? I read an article recently (maybe the FT) that mentioned along the lines of allowing higher rate tax payers to 'hypothecate' their tax back to themselves via SS and how it will need to be scrapped at some point.

jamesd

Salary sacrifice isn't an advantage mainly for higher rate tax payers, the main benefit comes within basic rate, where the 12% NI band is aligned with the basic rate income tax band. This means basic rate people get 20% income tax relief and 12% employee NI saving. Higher rate get 40% income tax saving and 2% employee NI saving because they are in the 2% NI band. That narrows the gap from 20:40 to 32:42.

Higher rate tax payers can maximise the amount on which they can get 12% NI saving if they concentrate their contributions into the smallest possible number of months, so the maximum amount of sacrifice in each month is within the basic rate band.