Calculating take-home pay with capped, salary-sacrificed pension contributions

MaMoneyMaMoney

Hi all

I'm hoping someone would help me figure out what the take-home pay is going to be for me going forward. I recently changed company, and they allow personal pension contributions on a salary sacrifice basis but capped to £100k.

So for example, if my yearly gross salary is £120,000 and I decide to contribute 8% via salary sacrifice, that 8% is applied to £100,000 (=£8,000). Does that make sense?

Given this info, how can I calculate the take-home pay taking into consideration this setup? 

Using listentotaxman.com does not work well as it does not do this "layered" type of calculation....

Does anyone know the formula(s) I should apply to figure out what the take-home pay would be based on how much pension contribs I would decide to commit to make?

Thanks all in advance

MaMoneyMaMoney

An example. Say my yearly gross salary is £120,000, and I decide to go for 8% personal pension contribs (again, via salary sacrifice - but capped at £100,000). 

The breakdown should be:

Yearly gross salary = £120,000
Pension contrib salary cap = £100,000
Personal pension contrib = 8%
Personal pension contrib amount based on cap = 8% of 100,000 = £8,000

New yearly salary after sacrifice applied = £92,000 ( £100,000 - £8,000 = £92,000...right?)
Salary amount over pension cap = £20,000 (which is £120,000 - £100,000)

Final salary on which to calculate take-home pay on = £92,000 + £20,000 = £112,000

Is this the salary I should input into listentotaxman.com and base my take-home pay calculations on? 

Sorry I'm not a tax accountant or member of any payroll team! Hope the above makes sense and will help you help me

QrizB

Can you use £120k for all the calculations but then adjust the actual % you salsac upwards to six-fifths of the calculated amount?

Or, if doing it the other way around, it's five-sixths.

Using your example, £8000 salsac is 6.667% of £120k.

MaMoneyMaMoney

I'm not sure I understand this correctly. What would the formula be? 

QrizB

MaMoneyMaMoney said:

I'm not sure I understand this correctly. What would the formula be? 

I've edited my reply, does it make sense to you now?

More generally:

• Salary Sk (<100k)
• Salsac calculated based on £100k (no idea why, it must've made sense to your employer)
• Actual salsac P% of £100k
• Number to use for the calculator = P x 100 / S

So if your salary is £123k and your salsac is 6%, the number to use in the calculator would be 6 x 100 / 123 which is 4.878%.

Or if your salary is £456k and your salsac is 6%, the number to use in the calculator would be 6 x 100 / 456 which is 1.316%.

MX5huggy

Yes £112000 (where did I go wrong?). Try 
https://www.thesalarycalculator.co.uk/salary.php 

put the SS under pension not the SS section (that’s for cars and bikes etc). 

MaMoneyMaMoney

QrizB said:

MaMoneyMaMoney said:

I'm not sure I understand this correctly. What would the formula be? 

I've edited my reply, does it make sense to you now?

That's much better, thanks!

So...the 6.667% in the example above I should put into the pension % field within listentotaxman.com (based on yearly gross of £120,000)? Do I understand this correctly?

QrizB

MaMoneyMaMoney said:

QrizB said:

MaMoneyMaMoney said:

I'm not sure I understand this correctly. What would the formula be? 

I've edited my reply, does it make sense to you now?

That's much better, thanks!

So...the 6.667% in the example above I should put into the pension % field within listentotaxman.com (based on yearly gross of £120,000)? Do I understand this correctly?

Yes, that should work. I've included some more worked examples above.