Salary sacrifice pay more ?

flopsy1973

Hi 
Been paying into  my work pension with Aegon for number of years now on salary sacrifice scheme. I pay max 7% and company pays max 10% i earn around 25K with OT taking it to 29K.
I can afford to pay more into the scheme probably about 200 a month. Surely there is no disadvantage here better than saving via ISA?
Also would like to made additional lump sum payments into scheme as i understand i can claim the tax relief for 3 years on this ? how would this work 
many thanks

Dazed_and_C0nfused

Salary sacrifice is usually the most tax/NI  efficient method of contributing to a pension as you are giving up the salary so avoiding paying, in your case, 20% tax and 12% NI (13.25% for a year from 6 April 2022).

The alternative is to get tax relief on the pension contributions but that is only worth 20% so salary sacrifice is better despite not actually getting any tax relief added to the contributions (they are employer contributions with salary sacrifice).

You can only ever claim pension tax relief in the tax year the contribution is paid in.  

QrizB

flopsy1973 said:

Surely there is no disadvantage here better than saving via ISA?

The advantage of an ISA is that you can get the money back whenever you want it, rather than having to wait until you're 55 (due to increase to 57).

If that isn't a problem, the 33% of tax+NI avoided with salary sacrifics makes a pension more attractive than an ISA.

Also would like to made additional lump sum payments into scheme as i understand i can claim the tax relief for 3 years on this ? how would this work

As mentioned in the previous post, the most you can contribute to a pension in a year is your taxable pay. If you're earning £29k, you could contribute a maximum of £29k.

You can start by increasing your salary sacrifice to the maximum (ie. sacrifice your salary down to National Minimum Wage) which will give you the biggest tax+NI saving, making up any income shortfall by spending from the savings you hope to contribute.

flopsy1973

Ok thanks so I didn't know if I was in salary sacrifice scheme I would not get tax relief on top it's either one or the other ?  But I will be making these extra contributions not my employer but I am just using the scheme to make them? 
So I add to my pension with  lump sum this year max I can claim tax relief ? 

Albermarle

Ok thanks so I didn't know if I was in salary sacrifice scheme I would not get tax relief on top it's either one or the other ?
Effectively yes. When you contribute by SS , you do not pay any tax on the contribution's so no tax relief to claim as you never paid the tax in the first place .

If you add a lump sum separately direct to the pension provider they should add on basic rate tax relief.

However best to call them first to check as not all providers can cope with getting two different types of contributions for the same person.

flopsy1973

ok so salary sacrifice is a easy win then for boosting my pension 

Albermarle

flopsy1973 said:

ok so salary sacrifice is a easy win then for boosting my pension 

Normally yes .

flopsy1973

so if i sacrifice an extra 200 per month salary I will gain the extra 33% on top going into my pension from tax and NI?

QrizB

flopsy1973 said:

so if i sacrifice an extra 200 per month salary I will gain the extra 33% on top going into my pension from tax and NI?

No. It's more like:

• If you sacrifice £200/month your pension will increase by £200/month and your gross pay will reduce by £200/month. Your take-home pay will reduce by £133/month.
• If you sacrifice £300/month your pension will increase by £300/month and your gross pay will reduce by £300/month. Your take-home pay will reduce by £200/month.

Have a play with the MSE income tax calculator to see what it means for you personally. Rember that salary sacrifice reduces your gross income, so if you earn £25000 but sacrifice £200/month (£2400/yr) you should use £22600 as your salary for the calculation.

flopsy1973

Ok  If im already paying into salary sacrifice scheme what will I benefit by additionally paying 200 per month is there any additional gain apart from the additional 200 i am putting in calculators just take into account the existing ?

Dazed_and_C0nfused

Which method would you be using for the additional £200/month?

If you sacrifice more then you get £200 into your pension as there is no pension tax relief with salary sacrifice.  But you won't pay any tax or NI on the £200 you have sacrificed.

If you make personal payments under the relief at source method then you will end up with £250 in your pension, £200 you pay plus £50 in basic rate tax relief the pension company adds, courtesy of HMRC,