Increasing National Insurance savings by making large pension contributions in minimal months

corey2k Forumite Posts: 10
Tenth Anniversary Combo Breaker
I had an idea a few months ago about a methodology to increase tax savings when making salary sacrifice pension contributions.

In short, due to the way NI is calculated (on a monthly basis with bands 0%, 12% and 2%), we can save by making our pension payments over as few months as possible, rather than spreading them out over 12 months.

Take for example a person earning £65,000 making salary sacrifice pension payments of £12,000.  These payments spread over 12 months would mean tax savings of 42% (40%+2%), however, if the person was to make the pension payments over 3 months (minimum wage for 2 months, slightly more the last), the tax savings would be 48.93%, saving them £831.76 in NI.  It works by making pension payments so large that we start saving in the 12% band.

I wrote a calculator to demonstrate this:

Has anybody tried this before?  There is a similar theory that applies to people on the 60%/45% tax boundary, where you can reduce average income tax over the years by paying varying amounts into pension


  • Jeremy535897
    Jeremy535897 Forumite Posts: 10,245
    10,000 Posts Third Anniversary Name Dropper
    edited 25 June at 9:02PM
    Firstly, it does not work for directors, who have an annual pay period for national insurance. Otherwise, you are correct, so long as you receive at least £123 a week. As to the 60%/45% boundary, again you are correct, as it is better to earn £100,000 in year 1 and £150,000 in year 2 than £125,000 in each year. The benefit may be increased further if childcare is relevant.
  • Pat38493
    Pat38493 Forumite Posts: 1,915
    Ninth Anniversary 1,000 Posts Name Dropper Combo Breaker
    edited 28 September at 8:38AM
    I was referred to this thread due to a post on the pensions board - interesting calculator - I think I am doing something like this already but more by luck than judgement.  Might give it a whirl.
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