Ok to pay 100% of March salary into pension?

Oasis1

I pay higher rate of tax as my salary is ~75k. I have paid 21% contributions into my employer pension scheme throughout this financial year.

For my last salary payment of the financial year (this month, March), I'm thinking of asking my employer to put 100% of it into the pension scheme to save 40% of it being taxed. Does that sound right?

I'll have to dip into my savings to cover outgoings for a month but this feels like the smart thing to do given I'm in my early 30s so hopefully a good chance for this 'bumper' contribution to grow over time. Again, does that seem like a fair assumption?

Essentially I'd appreciate any steer on this e.g. am I missing anything or does this seem like a generally good idea?

Two side notes - getting a mortgage is a possibility this year (will one missing salary payment matter that much if I can prove it went into my pension as a one off?) & my employer messed up my tax code last financial year so my tax code is lower to repay this. I expect this just means these 'repayments' will continue into the next financial year given I won't have paid anything from this month's salary?

Thanks in advance for any information/steer!

Pat38493

How are your contributions currently made through the employer scheme.  It will either be
- Net pay
- Relief at source
- Salary sacrifice.

If it is salary sacrifice you would only be allowed to sacrifice down to the national minimum wage for that period.  Also it assumes your employer is willing and able to do it - some employers are not very flexible with that sort of thing.

hornetgirl

I'll leave others to comment on whether it's a good idea but if it is something you decide to do, you probably need to be getting in touch with your payroll department pdq as we're already halfway through March. 

Grumpy_chap

Oasis1 said:

I pay higher rate of tax as my salary is ~75k. I have paid 21% contributions into my employer pension scheme throughout this financial year.

For my last salary payment of the financial year (this month, March), I'm thinking of asking my employer to put 100% of it into the pension scheme to save 40% of it being taxed. Does that sound right?

I'll have to dip into my savings to cover outgoings for a month but this feels like the smart thing to do given I'm in my early 30s so hopefully a good chance for this 'bumper' contribution to grow over time. Again, does that seem like a fair assumption?

Essentially I'd appreciate any steer on this e.g. am I missing anything or does this seem like a generally good idea?

Two side notes - getting a mortgage is a possibility this year (will one missing salary payment matter that much if I can prove it went into my pension as a one off?) & my employer messed up my tax code last financial year so my tax code is lower to repay this. I expect this just means these 'repayments' will continue into the next financial year given I won't have paid anything from this month's salary?

Thanks in advance for any information/steer!

Your employer will likely not allow you to contribute more to the pension than would take you down to NMW for the period.

You may be too late to catch this month's payroll.

You can usually make additional pension contributions from own funds (subject to AA).  This might be an option if the employer cannot process the request.

With regard to the mortgage, how much LTV and how much salary multiple are you looking to borrow?  Will reducing your available deposit (by the amount of the pension contribution) or reducing salary (effectively) have a material impact on either of these metrics?  

Albermarle

Might be better ( as it is so late ) to make a lump sum contribution direct to your pension from your savings. In this case you could even add more than one months salary if you wanted, and assuming that your total gross contribution for the tax year is no more than your gross salary.
You would have to check with the pension provider if they would be OK with this ( most would be ).
A personal contribution like this would have basic rate tax relief added by the provider, and you would have to claim back any higher rate relief due.
This is the same as an employer 'Relief at Source' scheme, which your employer may or may not be using.

Oasis1

Thanks for the input everyone.

-> Re type of contributions - I called my pension provider who said they're recieving it as salary exchange (aka salary sacrafice with relief at source) - they haven't had to arrange tax relief on top. I'm just checking with my employer that this is definitely correct but there's been some changes in staffing so may be a challenge to get an answer.

Pat38493 said:

If it is salary sacrifice you would only be allowed to sacrifice down to the national minimum wage for that period.

When you say period, do you mean month 12 (aka March)? I'm confused how I work out the maximum I can contribute if it has to be above NMW?

-> Re being late for payroll - They're happy to make the request today and will let me know if its possible. This would be my preferred option so I don't have to claim back higher rate tax.

-> Re mortgage - I don't think it will make a big difference re LTV and salary multiplier. Currently looking at properties less than 4.5x my salary (e.g. ~300k) and should have sufficient deposit for a good LTV of 60-70%. Do most mortgage providers only look at net income re salary, even if its clear you can reduce pension contributions if you need to?!

Oasis1

Some further context to this ask. The recent PLSA changes to what you need for a moderate pension income have thrown me. I'm not from a wealthy family background where there's an inheritance bonanza coming my way so have always been anxious to create my own financial safety net. Hence wanting to bump up my pension pot whilst I can make the most of 40% tax relief and give it a good chance to grow!

zagfles

NMW rates are here
National Minimum Wage and National Living Wage rates - GOV.UK (www.gov.uk)
As an approx figure on monthly payroll your pay after the sal sac would have to be at least weekly hours x £10.42 x52/12 assuming you're not under 23 or an apprentice. But may be slightly different depending how they calculate it wrt weeks/months/working days, ie a bit over £1800 if 40h week. 

Marcon

Oasis1 said:

Pat38493 said:

If it is salary sacrifice you would only be allowed to sacrifice down to the national minimum wage for that period.

When you say period, do you mean month 12 (aka March)? I'm confused how I work out the maximum I can contribute if it has to be above NMW?

If you're paid monthly, that is your pay period. If you are making personal contributions then minimum wage considerations don't apply. If you make the payment by salary sacrifice, then you need to ensure your employer pays you at least the minimum wage for your contracted hours: https://www.gov.uk/national-minimum-wage-rates

Oasis1

Thank you for explaining re period and NMW, I am paid monthly with a 37.5 hour contract.

That means ((37.5*10.42)*52)/12 = £1,693.25 would be my NMW for each period. So I've worked out I can pay a pension contribution of 72% for this month, leaving enough of a salary payment to cover NMW.

So I'm going to request this, let's see what happens...

xylophone

I called my pension provider who said they're recieving it as salary exchange (aka salary sacrafice with relief at source) - they haven't had to arrange tax relief on top.

You are not on a "relief at source" arrangement and if you refer to RAS in connection with your scheme, you will cause confusion.

See  https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/tax-relief-and-your-pension

RAS, "net pay" and salary sacrifice are explained.

You cannot sacrifice to the extent that your salary is reduced to an amount under minimum wage.