Paying into workplace pension

Dazed_and_C0nfused

aroominyork said:

Yes, I get that she can pay £18,240 into her SIPP. Her total gross pension contributions would be (24000*5%) + (18240/80%) = 24000.

If this was relief at source, her taxable pay would be £24,000, the pension provider would receive £960 and reclaim £240 from HMRC. Her gross pay would be the same as her taxable pay which would be the same as her salary cap.

But it seems that with net pay, her workplace contribution is ignored when calculating the salary cap, meaning the salary cap does not reflect the total she can pay into pension (both workplace and SIPP) but only the SIPP element.

I don't really understand what point you are trying to make.

The facts are she will have paid £24,000 (gross) in pension contributions.

Is the 5% net pay contribution being made into a DB or DC pension?

You seem to be suggesting that paying £240 extra in tax on her earnings to then be able to get £240 in tax relief via a relief at source contribution is preferable.  Is that your point?

aroominyork

My question is not about the total she can pay int pensions - that is clearly £24k gross. It is about whether salary cap means different things in net pay and relief at source schemes. So, what is her salary cap in this net pay arrangement? Is it £24,000 or £22,800? If the former, it is different from taxable pay as stated on payslips/P45/P60. If the latter, it does not reflect the total she can pay into pensions.

Dazed_and_C0nfused

aroominyork said:

My question is not about the total she can pay int pensions - that is clearly £24k gross. It is about whether salary cap means different things in net pay and relief at source schemes. So, what is her salary cap in this net pay arrangement? Is it £24,000 or £22,800? If the former, it is different from taxable pay as stated on payslips/P45/P60. If the latter, it does not reflect the total she can pay into pensions.

If her salary is £24,000 then the most she could pay in net pay contributions would be £24,000.  

Although if she is in a DB scheme that could well result in her exceeding the annual allowance.

But for most people doing so would be either impossible due to payroll constraints (she would have negative net pay on her payslip) or makes no financial sense as she would normally get no tax relief on £12,570 (or £11,310) of those net pay contributions.

aroominyork

Her workplace scheme is DC. This is how it seems to me (and I appreciate your interest is wearing thin):

- gross salary: £24,000

- employer pension contribution of 3%: £720

- employee pension contribution of 5% through net pay: £1200

- gross taxable salary: £22,800

- salary cap for pension purposes: £22,800 (the anomoly that it differs from gross salary)

- SIPP contribution limit: £22,800*80% = £18,240 net.

Is that right?

Dazed_and_C0nfused

aroominyork said:

Her workplace scheme is DC. This is how it seems to me (and I appreciate your interest is wearing thin):

- gross salary: £24,000

- employer pension contribution of 3%: £720

- employee pension contribution of 5% through net pay: £1200

- gross taxable salary: £22,800

- salary cap for pension purposes: £22,800 (the anomoly that it differs from gross salary)

- SIPP contribution limit: £22,800*80% = £18,240 net.

Is that right?

Does it matter what I think?  You have essentially repeated what I posted at 08:50.

To be honest I don't know what "salary cap for pension purposes" actually is.

But I know in the situation you have outlined she can pay £22,800 (gross) in relief at source contributions.  After having paid £1,200 in net pay contributions.

As everything is going to a DC scheme the annual allowance element isn't going to be an issue as there is no PIA complication.

And I'm still at a loss as to what point you are trying to make 🤔.  Do you think your wife has somehow been disadvantaged by making net paying contributions and avoiding paying £240 tax on her earnings?

aroominyork

Dazed_and_C0nfused said:

aroominyork said:

Her workplace scheme is DC. This is how it seems to me (and I appreciate your interest is wearing thin):

- gross salary: £24,000

- employer pension contribution of 3%: £720

- employee pension contribution of 5% through net pay: £1200

- gross taxable salary: £22,800

- salary cap for pension purposes: £22,800 (the anomoly that it differs from gross salary)

- SIPP contribution limit: £22,800*80% = £18,240 net.

Is that right?

To be honest I don't know what "salary cap for pension purposes" actually is.

That explains the confusion! I've only been in RAS schemes where gross salary = salary cap. In net pay schemes it seems salary cap means 'salary cap for non-net pay contributions'.

The outcome is the same and she isn't disadvantaged.