Pension contributions capped by employer

ItchyFeet2

I started in a new job last October and the company matches pension contributions up to 10%.  The starting salary was 22500.  I set my contributions to 10% straight away to take full advantage of the contribution match.  However, this month I have had a pay rise to 24500, and also received an email from HR to say they were reducing my pension contributions to 8% because the recent increase in the minimum wage means I will fall below this with 10% contributions.  

I have followed this up with HR but they say they are legally obliged to ensure i don't earn less than minimum wage.  I am so annoyed because I can afford to make these contributions, and at 48 years of age I want to pay in as much as possible to my pension.  I am also missing out on the additional company match.  Is there any way I can opt out of this?  It seems totally counterproductive!

Phoenix72

If your employer is capping it for NMW then this suggests salary sacrifice? If so, your emoloyer is correct and you cannot salary sacrifice to an amount that means you are earning NMW. Remember with sal sacrifice it is not 'your' money going in, you are giving up pay for an employer contribution.

hugheskevi

ItchyFeet2 said:

I am so annoyed because I can afford to make these contributions, and at 48 years of age I want to pay in as much as possible to my pension.  I am also missing out on the additional company match.  Is there any way I can opt out of this?  It seems totally counterproductive!

You cannot opt-out of it, but you can ask your employer if you can make additional contributions through the net pay or relief at source methods, and whether they would match those contributions.

You may be able to make payments directly to the workplace pension provider independently of payroll, else you can make contributions to a separate personal pension.

artyboy

Assuming your employment pension is salary sacrifice based, then your employer is entirely correct - legally they can't let you sacrifice your salary below NMW level.

If you really do want to pay more into a pension, nothing stopping you opening a separate SIPP and making your own contributions there with BR tax relief added, albeit you won't get the extra company match.

ItchyFeet2

Thanks for your replies!  My interest in pensions is fairly new, despite always having had one and my understanding is still fairly rudimentary.  No idea this signified it was salary sacrifice.  The link is interesting hugheskevi, thanks.  I think I can pay into the pension outside of payroll.  I may just have to be a bit patient until I get another pay rise. 

ColdIron

Don't form the opinion that SS is disadvantaging you, it's not. It's the most effective way to contribute to a pension as you will pay less NI (and so will your employer) and if you become a higher rate taxpayer saves you having to reclaim that extra tax

Albermarle

ItchyFeet2 said:

Thanks for your replies!  My interest in pensions is fairly new, despite always having had one and my understanding is still fairly rudimentary.  No idea this signified it was salary sacrifice.  The link is interesting hugheskevi, thanks.  I think I can pay into the pension outside of payroll.  I may just have to be a bit patient until I get another pay rise. 

There are three ways that your workplace pension contributions can be made ( it varies from employer to employer)
Salary sacrifice - You give up some salary and the employer makes one contribution to your pension each month ( which effectively contains theirs and your contribution). You pay less NI this way because you have a lower salary.
Net Pay - The contribution is taken from your salary pre tax 
Relief at source - The contribution is taken from your after tax pay. The pension provider adds basic rate tax relief to your contribution.

It sounds like your employer uses SS, it should have been mentioned in your employment contract,
If you add money separately to a personal pension it will be by RAS.

Marcon

ItchyFeet2 said:

Thanks for your replies!  My interest in pensions is fairly new, despite always having had one and my understanding is still fairly rudimentary.  No idea this signified it was salary sacrifice.  The link is interesting hugheskevi, thanks.  I think I can pay into the pension outside of payroll.  I may just have to be a bit patient until I get another pay rise. 

Worth asking payroll if you can have personal contributions* deducted from your salary and paid direct to the provider, and if so will your employer match these. Unless they are pretty clued up on pensions (a lot of HR people aren't and just 'follow the rules' they know), you might need to take that conversation slowly and gently...

*ie whatever contributions can't be made via salary sacrifice because they would take you below minimum wage

af1963

You can't salary sacrifice below NMW.  But looking at your figures something isn't matching ...

Last year - you must have earned NMW of 10.42 per hour *after* the 10% deduction, which means you were on a gross hourly rate of at least 11.58

(You may not be paid by an hourly rate, but that's what they need to compare against.)

This year : you've had a salary increase of 8.9% which would take that hourly rate to 12.61.  NMW is now 11.44 so you should be able to pay about 1.16 of that into a pension -  which is over 9% rather than the 8% they've set.

Maybe worth asking them to calculate the maximum possible for you to contribute ?