60% tax trap - Increase pension contributions

lithium_101

Hi,

I fall into the 60% tax trap due to my PAYE salary and would like to sanity check my intentions before I ask my employer to alter my pension contributions. 

* My base salary £127,500 PA.

* I pay 4% into a company pension scheme (my employer also matches my 4%).

I'd like get out of the 60% trap by increasing my pension contributions to £27,500 PA. 

But I'm not sure how to request this via my employer?

Do I ask my employer to reduce my PAYE salary to £100,000 in exchange for £27,500 in pension contributions? 

Or do I simply ask them to increase the percentage of my pension contributions to 21.5% (an equivalent of £27,500)?  

I'm happy to receive a lower monthly paycheck if my pension pot sees the benefit.

Let me know if you need more information. Any input is welcome! 

Thanks

RogerPensionGuy

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Pat38493

Yeah you would basically need to calculate the % contribution to take your gross salary down to under 100K.

However you should also check your P60 and take into account any taxable benefits like company car or medical insurance - e.g. if your company pays £1K for medical insurance for you, you would have to reduce your gross taxable to 99K for example to avoid the 60% marginal rate.

Also - pay attention to the Annual allowance which is currently 40K but set to increase to 60K, and for that, your employer contributions count as well.  If your employer will only match up to 4% you are fine, but if your employer matches everything (which I doubt), you would be putting more than £60K each year.  You would be ok for a couple of years with rollover but would have to start paying attention after that.

Also obviously if you get a bonus you would have to adjust for that as well.

retiringtoosoon

Just curious, but why are you not already putting the max AA into your pension?
Seems a no brainer

Pat38493

retiringtoosoon said:

Just curious, but why are you not already putting the max AA into your pension?
Seems a no brainer

I don’t know about the OP but I also did this for a couple of years as I didn’t even realise I was paying such a ridiculous tax rate on some of my money - as soon as I realised, I took action.

billy2shots

Some people also lead expensive lives. 

In the OP's shoes, I wouldn't get my income down to £100k. I would get it down as low as possible. 

They have been paying £10,200 into their pension (if the OP is accurate). 

Using all available carry back I would be paying only Basic Rate tax in this situation for the next couple of years.

On those figures, OP has £39,800 left in AA this year and possibly a further £119,400 from previous years. 

(Double check that as I pay in via my Ltd)

lithium_101

I've increased my pension contributions to 20% (for now). I'm going to do some further calculations to see how much I can afford to pay in. Thank you all for the help.