Tax efficiency decisions with pay rise over higher rate

NailMagic

Hi all - I searched around but couldn't find the answers, so will try this.

I am 51 and have £5240 in a Nest pension. I have no other pension
I have been offered a pay increase from £45,600 to £68,830 starting 18th March 2024
I am obliged to pay 5% into NEST
My employer offers salary sacrifice

Questions:
1. how much should I pay on top of the 5% into my pension to avoid 40% higher rate tax? (my employer is saying an extra £1,546.66 a month on top of the 5% Nest contribution a month, which doesn't seem right to me)
2. can I just pay it all into Nest? If so, would I be much better going to a financial adviser and paying it into a SIPP? 

Very grateful for any advice.  My head is exploding trying to work this out. 
Thank you! 

Dazed_and_C0nfused

NailMagic said:

Hi all - I searched around but couldn't find the answers, so will try this.

I am 51 and have £5240 in a Nest pension. I have no other pension
I have been offered a pay increase from £45,600 to £68,830 starting 18th March 2024
I am obliged to pay 5% into NEST
My employer offers salary sacrifice

Questions:
1. how much should I pay on top of the 5% into my pension to avoid 40% higher rate tax? (my employer is saying an extra £1,546.66 a month on top of the 5% Nest contribution a month, which doesn't seem right to me)
2. can I just pay it all into Nest? If so, would I be much better going to a financial adviser and paying it into a SIPP? 

Very grateful for any advice.  My head is exploding trying to work this out. 
Thank you! 

From a tax (and NI) perspective you would be best off not paying anything into Nest but sacrificing some salary in return for additional employer contributions.

You don't get any pension tax relief with employer contributions but you avoid paying tax and NI on the income you have sacrificed i.e. you never received it.

How much you should sacrifice to avoid higher rate tax will depend on where you are resident for tax purposes - as you mention 40% presumably not Scotland?

If you can persuade your employer to let you stop paying the 5% and make that salary sacrifice that would also be a good idea.

Albermarle

Only indirectly linked to your question but considering your salary level, your pension is extremely small.
Regardless of the tax issue, you should consider increasing your contributions significantly anyway.

 can I just pay it all into Nest? If so, would I be much better going to a financial adviser and paying it into a SIPP? 
A financial advisor would not be interested due to the small sums involved.
The main issue is not who the pension provider is, but how much you are adding and how small the pot is .

BoGoF

In you situation (which is pretty bad in terms of existing pension provision) you need to pay the maximum you can into a pension, preferably by salary sacrifice.