Seven pension pots no clue

sixpots

Dazed_and_C0nfused said:

sixpots said:

Qyburn said:

sixpots said:

Seriously looking at my pension provision and trying to get head round it. 

49 years old, mortgage free, savings 80k, higher rate tax payer in Scotland. Have full state pension contributions. 

Can you afford to increase pension contributi9ns enough to take you out of higher rate tax?

Yeah I could, and if it brings forward my retirement age I’d be very keen on doing so. 

Pension contributions are very generous tax relief wise when you are a higher rate payer.

As a Scottish higher rate payer you could be getting 20% added to your pension pot (which is 25% of your net contribution) plus paying more tax at 20/21% and less at 42%.

RAS contributions also reduce your adjusted net income so can reduce any HICBC which might be payable.

They can also mean you have a larger savings nil rate band (£1,000 taxed at 0% rather than just £500).

And become eligible for Marriage Allowance.

Thanks that’s definitely something I will look into.

Dazed_and_C0nfused

Should have added, if salary sacrifice is an option then, other than for some low earners that's usually the best option.

You don't get any tax relief added to the contribution as they are actually employer contributions.  You agree to a reduced salary in return for extra employer contributions.

But you avoid paying tax and NI on the amount sacrificed and for some Scottish taxpayer's this can be a mix of 42% tax and 12% NI 😄.

They are also simplest as you never need to notify HMRC about them, you get any relief due immediately from having the reduced salary.

af1963

Salary sacrifice, if your employer offers it, is usually a pretty good deal.  Even better if they 'match' all or part of the saving that they make on Employer National Insurance, but good even if they don't.

You could use some savings to live off, to allow higher sal sac contributions -  if that lets you save more higher rate tax and NI, it effectively turns every £550 into £1000 - but bear in mind that you won't be able to access the pension till you are over 57. ( 10 years before state pension age - your SPA will be 67+ as you're in the next transition period for increasing the pension age.)  So you many need some non-pension savings to be accessible if you think you'll want to use them earlier than that.

sixpots

Dazed_and_C0nfused said:

Should have added, if salary sacrifice is an option then, other than for some low earners that's usually the best option.

You don't get any tax relief added to the contribution as they are actually employer contributions.  You agree to a reduced salary in return for extra employer contributions.

But you avoid paying tax and NI on the amount sacrificed and for some Scottish taxpayer's this can be a mix of 42% tax and 12% NI 😄.

They are also simplest as you never need to notify HMRC about them, you get any relief due immediately from having the reduced salary.

So, have been reading up on this, here can’t post links yet, but it was first two in google, on pension tax relief at th uk gov and the unbiased site

On my basic of 72k I should look to salary sacrifice 22k if my employer allows it? What about overtime do I need to consider that, as it’s on average £500 a month, so I’m thinking 30k to be safe, this would allow to reclaim on 28k? Going by the above links if my understanding is correct. Current max is 40k if my understanding is correct? 

What are my options if salary sacrifice isn’t an option, personal pension with someone like Scottish Widows / Standard Life?

Dazed_and_C0nfused

sixpots said:

Dazed_and_C0nfused said:

Should have added, if salary sacrifice is an option then, other than for some low earners that's usually the best option.

You don't get any tax relief added to the contribution as they are actually employer contributions.  You agree to a reduced salary in return for extra employer contributions.

But you avoid paying tax and NI on the amount sacrificed and for some Scottish taxpayer's this can be a mix of 42% tax and 12% NI 😄.

They are also simplest as you never need to notify HMRC about them, you get any relief due immediately from having the reduced salary.

So, have been reading up on this, here can’t post links yet, but it was first two in google, on pension tax relief at th uk gov and the unbiased site

On my basic of 72k I should look to salary sacrifice 22k if my employer allows it? What about overtime do I need to consider that, as it’s on average £500 a month, so I’m thinking 30k to be safe, this would allow to reclaim on 28k? Going by the above links if my understanding is correct. Current max is 40k if my understanding is correct? 

What are my options if salary sacrifice isn’t an option, personal pension with someone like Scottish Widows / Standard Life?

With salary sacrifice there is nothing for you to claim.  You are agreeing to a reduced salary in return for additional employer pension contributions and as an individual you don't get any tax relief on employer contributions.

The benefit is from not paying tax or NI on the salary you sacrificed.

The annual allowance, which includes employer contributions, has now been increased to £60k.

As a Scottish taxpayer you will be paying higher rate tax above £43.6k, not £50,270.

And all taxable income will be a factor, overtime just adds to that.

sixpots

So I’ve got to get my salary to 43.6k?

Dazed_and_C0nfused

sixpots said:

So I’ve got to get my salary to 43.6k?

It depends what other taxable income you have but that is the point at which Scottish higher rate tax starts.

https://www.litrg.org.uk/tax-guides/tax-basics/what-scottish-income-tax/how-does-scottish-income-tax-work

Qyburn

sixpots said:

So I’ve got to get my salary to 43.6k?

You don't have to. It's just that pension contributions from your salary over that threshold will save you 42% tax, whereas once you're below then any further contributions only save 21%.

MallyGirl

Qyburn said:

sixpots said:

So I’ve got to get my salary to 43.6k?

You don't have to. It's just that pension contributions from your salary over that threshold will save you 42% tax, whereas once you're below then any further contributions only save 21%.

but along with the 21% tax comes the 12% NI saving so it is still a great deal.
Getting yourself below the £50k limit also qualifies you for child benefit in England - not sure if the same is true in Scotland.

Qyburn

MallyGirl said:

Getting yourself below the £50k limit also qualifies you for child benefit in England - not sure if the same is true in Scotland.

That's an interesting point because £50K is not the Higher Rate threshold in Scotland, and I don't think it's exactly 50K in England either. So worth checking. On a related note a Scottish tax payer gets the basic rate PSA as long as he is below the English HR tax band, so could in fact be paying Scottish HR tax but still receive the £1,000 PSA.

So in fact there could be three thresholds to consider.