Salary Sacrifice after taking state pension

NotTightJustCareful

I am 66 next year and am entitled to the full state pension. I want to continue working part-time for a year and want to stop paying tax of on my non ISA savings by utilising the starting rate for savers. I will be getting about 2.5K in interest.  As I see it I have 2 options. Pay the majority of wages into my work's private pension scheme using salary sacrifice or deferring my state pension. I would rather do the former but that would bring down my hourly rate to below the living wage. Am I  allowed to do that as my wages would be supplemented by my state pension? I need to bring down my incoming monies to below £16000 in total so i can have approx £1570 starting rate for savers allowance in in addition to £1K personal allowance.  Any suggestions ?

Albermarle

Your employer is not allowed to pay you less than the minimum wage, regardless of your other income.
Deferring the state pension is not the great deal it used to be, but it is not a bad deal, especially as it would only be for a year or so. 

TheSpectator

As above you cannot salary sacrifice below minimum wage Is is really the end of the world if you pay £300 odd tax? Deferring state pension to save £300 seems a bit extreme. Makes sense to defer if you are higher rate.

NotTightJustCareful

Thanks  Albermarle, I  thought that might be the case. Then I might delay the state pension. I have worked it would have to be by 36 weeks to bring my total payments down to 16K. As you said it isn't a bad deal (5.8%) especially as it is inflation linked. Better than any annuity rates I can see advertised.

Marcon

NotTightJustCareful said:

I am 66 next year and am entitled to the full state pension. I want to continue working part-time for a year and want to stop paying tax of on my non ISA savings by utilising the starting rate for savers. I will be getting about 2.5K in interest.  As I see it I have 2 options. Pay the majority of wages into my work's private pension scheme using salary sacrifice or deferring my state pension. I would rather do the former but that would bring down my hourly rate to below the living wage. Am I  allowed to do that as my wages would be supplemented by my state pension? I need to bring down my incoming monies to below £16000 in total so i can have approx £1570 starting rate for savers allowance in in addition to £1K personal allowance.  Any suggestions ?

Your employer has to pay you at least the minimum wage, which is lower than the living wage. That might help a bit?

Don't forget you can make personal contributions to your pension which would qualify for tax relief and bring down your overall tax bill. You wouldn't get any NI saving as you might with salary sacrifice, but again it might help?

NotTightJustCareful

I used the national minimum wage in my calculation. I know I can pay further pension contribution by relief at source and the pension company will reclaim tax paid back. They wouldn't be any difference in Tax because I won't be paying NI after 66. The problem is that the starting rate for savers is calculated on net pay , right ?

Aretnap

Marcon said:

NotTightJustCareful said:

I am 66 next year and am entitled to the full state pension. I want to continue working part-time for a year and want to stop paying tax of on my non ISA savings by utilising the starting rate for savers. I will be getting about 2.5K in interest.  As I see it I have 2 options. Pay the majority of wages into my work's private pension scheme using salary sacrifice or deferring my state pension. I would rather do the former but that would bring down my hourly rate to below the living wage. Am I  allowed to do that as my wages would be supplemented by my state pension? I need to bring down my incoming monies to below £16000 in total so i can have approx £1570 starting rate for savers allowance in in addition to £1K personal allowance.  Any suggestions ?

Your employer has to pay you at least the minimum wage, which is lower than the living wage. That might help a bit?

If you're over 21 your employer has to pay you at least the national living wage, which is a higher than the national minimum wage (which nowadays strictly applies only to under 21s).

https://www.gov.uk/national-minimum-wage-rates

Both are lower than the living wage which is a campaigning group's view of what's actually a reasonable amount to live on, but I assumed that the OP is actually talking about the NLW.

If the OP does work for an accredited living wage employer then they do have to pay at least the living wage to maintain their accreditation, I'm not sure though whether this means gross pay or pay net of salary sacrifice. (Would be a bit daft if a voluntary scheme limited employers ability to choose to salary sacrifice but not everything in life makes complete sense).

Dazed_and_C0nfused

NotTightJustCareful said:

I used the national minimum wage in my calculation. I know I can pay further pension contribution by relief at source and the pension company will reclaim tax paid back. They wouldn't be any difference in Tax because I won't be paying NI after 66. The problem is that the starting rate for savers is calculated on net pay , right ?

No, it's determined by how much non savings non dividend income you have and the amount of your Personal Allowance.

But you are correct that making relief at source contributions won't help as they don't reduce your taxable income.

You can end up in the (relatively) unusual position of effectively being charged 40% tax despite your actual income being nowhere near the higher rate threshold.

If you do defer State Pension remember it's your entitlement in the tax year which counts, not what you actually receive.

NotTightJustCareful

 Dazed_and_C0nfused said:

NotTightJustCareful said:

I used the national minimum wage in my calculation. I know I can pay further pension contribution by relief at source and the pension company will reclaim tax paid back. They wouldn't be any difference in Tax because I won't be paying NI after 66. The problem is that the starting rate for savers is calculated on net pay , right ?

No, it's determined by how much non savings non dividend income you have and the amount of your Personal Allowance.

But you are correct that making relief at source contributions won't help as they don't reduce your taxable income.

You can end up in the (relatively) unusual position of effectively being charged 40% tax despite your actual income being nowhere near the higher rate threshold.

If you do defer State Pension remember it's your entitlement in the tax year which counts, not what you actually receive.

 I realise that starting rate for savers will be based  on my net pay + state pension. Hence why I was trying to reduce the amount of state pension by deferring it. But if its down to entitlement and not actual pension then I have no way to reduce my savings tax.

NotTightJustCareful

TheSpectator said:

As above you cannot salary sacrifice below minimum wage Is is really the end of the world if you pay £300 odd tax? Deferring state pension to save £300 seems a bit extreme. Makes sense to defer if you are higher rate.

   Fair point , I was wanting an extra reason to defer my state pension. I like the idea of small annuity to boost my basic pension to cover my basic needs. I have a small NHS DB pension that I have yet to take and that with the increased state pension would cover my basic needs. I will be drawing down my DC pension as I require extra to live upon.

400ixl

Maybe put your non ISA savings that will generate a tax liability in Premium Bonds for a year. Who knows, you may have better than average luck and get a decent return.