Auto enrolled in NEST - can I use the scheme to my advantage.

y002cjw

I'm in the middle of a 3 month contract and have been auto enrolled into NEST. I have until tomorrow to opt out! This will be my only employment of the tax year. I'm paying 146 a month and the employer 110 a month.

I already have a SIPP with HL.com. 

My question is, as this is only a 3 month contract, could I pay ALL my earnings into NEST to take advantage of any tax reliefs, as my earnings will be below the £40K maximum for pensions contributions? If so might it make sense to only pay in the amount above the 12570 tax allowance?

Are NI contributions taken out of pay regardless of pension contributions?

I guess I could I do all this in my SIPP instead, as far as I can see all i would lose out on is the 110 a month contribution from my employer?

TIA

Brie

Your employer will only be obliged to pay a certain amount - the £110 so paying more into NEST won't help.  But opting out will mean you lose the £110 so I'd stay in if I was you.  

NI normally comes off after pension contributions I believe.  happy to be corrected as I do occasionally get things wrong....maybe it's only if you are salary sacrificing your contributions.....

NedS

y002cjw said:

Are NI contributions taken out of pay regardless of pension contributions?

That depends on how the contributions are made.

If the employer contributes to a pension for you by way of salary sacrifice, then the amount of income eligible for NI is reduced by the amount of the sacrifice and you would save paying NI on that amount.

All other types of pension contributions do not affect the amount of NI that you pay.

Albermarle

NEST has an unusual charging structure as it charges a high % on your contributions ( 1.8% ) and then a low ongoing cost ( 0.3% all in ) So assuming you stay with Nest for the basic contributions, to get the employer contributions, then you have to look at the best home for your extra contributions. ( it can also be affected by the question in the other post about how contributions are made)

HL make no initial charge, but there is a ongoing platform charge of 0.45 % Plus the investment fund(s) charge . This can vary a lot and will depend on what you have chosen.

Nest has a relatively limited range of investment funds ( 10?) whilst HL has thousands. For some a smaller range is less confusing, whilst others may prefer a wider range.

My question is, as this is only a 3 month contract, could I pay ALL my earnings into NEST to take advantage of any tax reliefs, as my earnings will be below the £40K maximum for pensions contributions? If so might it make sense to only pay in the amount above the 12570 tax allowance?

There is actually no direct link between how much tax you pay, and how much tax relief you can get. 
Maximum tax relief available is based on your gross salary . How much tax you pay can be affected by many things. As an example if you earn £20K , you will pay tax only on the amount above your personal allowance. So in your case £20,000 minus £12,570 = £7,430 X 20% = £1,486
However you can add maximum £16K to your pension and get £4K added in tax relief, automatically.

y002cjw

Albermarle said:

My question is, as this is only a 3 month contract, could I pay ALL my earnings into NEST to take advantage of any tax reliefs, as my earnings will be below the £40K maximum for pensions contributions? If so might it make sense to only pay in the amount above the 12570 tax allowance?

There is actually no direct link between how much tax you pay, and how much tax relief you can get. 
Maximum tax relief available is based on your gross salary . How much tax you pay can be affected by many things. As an example if you earn £20K , you will pay tax only on the amount above your personal allowance. So in your case £20,000 minus £12,570 = £7,430 X 20% = £1,486
However you can add maximum £16K to your pension and get £4K added in tax relief, automatically.

Thanks Albermarle. I have noted your comments re initial and ongoing charges. I thought I had read 40K was the maximum yearly contribution but this won't be an issue for me. I think for convenience I will cancel the NEST account and do everything in my HL SIPP.

Since the first 12570 is tax free anyway, Using your figures, which aren't far off, I will make a contribution of 7430, which should reduce my tax to zero. I will have to take the NI tax on the chin unless you know any better?

Albermarle

 I thought I had read 40K was the maximum yearly contribution

It is and it includes your contribution, tax relief and the employers contribution. However your contribution is also limited by your gross salary .

which should reduce my tax to zero. 
You will still pay the normal amount of tax . Separately you will get tax relief on your contributions that will be paid into your pension.
If you do it the way you say they will balance each other out though.

Dazed_and_C0nfused

As @Albermarle says making relief at source pension contributions won't make any difference to the tax you have to pay.

And the amount of pension tax relief you can receive under relief at source isn't linked to the income tax you personally pay.

There are lots of non taxpayers contributing thousands each year and receiving basic rate tax relief despite not paying any tax in the first place.

grumiofoundation

y002cjw said:

Albermarle said:

My question is, as this is only a 3 month contract, could I pay ALL my earnings into NEST to take advantage of any tax reliefs, as my earnings will be below the £40K maximum for pensions contributions? If so might it make sense to only pay in the amount above the 12570 tax allowance?

There is actually no direct link between how much tax you pay, and how much tax relief you can get. 
Maximum tax relief available is based on your gross salary . How much tax you pay can be affected by many things. As an example if you earn £20K , you will pay tax only on the amount above your personal allowance. So in your case £20,000 minus £12,570 = £7,430 X 20% = £1,486
However you can add maximum £16K to your pension and get £4K added in tax relief, automatically.

Thanks Albermarle. I have noted your comments re initial and ongoing charges. I thought I had read 40K was the maximum yearly contribution but this won't be an issue for me. I think for convenience I will cancel the NEST account and do everything in my HL SIPP.

Since the first 12570 is tax free anyway, Using your figures, which aren't far off, I will make a contribution of 7430, which should reduce my tax to zero. I will have to take the NI tax on the chin unless you know any better?

Throwing away £330 in employer contributions?

cloud_dog

y002cjw said:

I'm in the middle of a 3 month contract and have been auto enrolled into NEST. I have until tomorrow to opt out! This will be my only employment of the tax year. I'm paying 146 a month and the employer 110 a month.

I already have a SIPP with HL.com. 

My question is, as this is only a 3 month contract, could I pay ALL my earnings into NEST to take advantage of any tax reliefs, as my earnings will be below the £40K maximum for pensions contributions? If so might it make sense to only pay in the amount above the 12570 tax allowance?

Are NI contributions taken out of pay regardless of pension contributions?

I guess I could I do all this in my SIPP instead, as far as I can see all i would lose out on is the 110 a month contribution from my employer?

TIA

Does this mean you are being paid under an umbrella company? 

If so, if the umbrella company makes the pension contribution doesn't this equate to SS, insofar as it is paid as a business expense, as opposed to an actual personal contribution?

biscan25

Good point from @cloud_dog
My last employment was on a day rate contract, paid via umbrella company, making me the employer as well as the employee.

The umbrella offered NEST as the auto-enrolment vehicle, but that is a very expensive scheme unless the money stays in it for over 20 years due to the contribution charge. I opted out and paid into a HL SIPP via salary sacrifice which works out as 0.45% + 0.05% investment fees.
You then save tax, employer's NI, Employees NI, apprentice levy etc. Very easy to do as well, you just need to tell them the money is coming.

I've now transferred this out into my new employer's subsidised Mastertrust.

If yours is a traditional employment contract, then really you should take the employers £100/month contributions anyway, and pay into a SIPP on top. Otherwise you are throwing money away,

Albermarle

I opted out and paid into a HL SIPP via salary sacrifice which works out as 0.45% + 0.05% investment fees.

For the benefit of other readers, I think it is worth pointing out that a 0.05% investment fee is not typical, and maybe in a very focused investment that may not suit the average investor. Do not know for sure of course without knowing what it is.