Question about one-off payments into Salary Sacrifice Schemes

Gaberdeen

Good Afternoon

My questions revolve around how one-off contributions to a DC pension work if the scheme is administered as a salary sacrifice product.

Ordinarily, if I wanted to make a one-off contribution to my pension on a specific month (i.e. after becoming eligible for a bonus) - I would contact payroll and give them either a revised % for that month or a simple flat figure - as with every other contribution, it gets instant relief of whichever rate it qualifies for by dint of not being seen by the taxman.

What I'm unsure about is how this works when you top-up your pension with cash that comes from outside of the employer. i.e. from the sale of a property or investments - Is it even possible to do this or would another pension need to be started?

My initial instinct tells me it isn't possible, purely because the money that you add *should* be eligible for tax relief - however the only way I can imagine that this is possible, is if you self assess after-the-fact and the money is recouped in some other fashion other than being added to your pension like "at source" arrangements are.

Can anyone definitively explain what the rules around this are and how one would go-about making such a one-off contribution complete with tax relief?

Thanks in advance for any responses.

molerat

To pay via sal sac it would need to come from the employer through payroll.  You may be able to add to the pension yourself and get a 25% uplift, you need to check with them, otherwise you would need to pay into a SIPP.  With sal sac you cannot pay in an amount that would take you below minimum wage in a pay period.

jimjames

Gaberdeen said:

What I'm unsure about is how this works when you top-up your pension with cash that comes from outside of the employer. i.e. from the sale of a property or investments - Is it even possible to do this or would another pension need to be started?

No reason why you couldn't reduce your salary by the amount of the investment sale and use your investment proceeds to pay your bills for a few months instead of wages. The money isn't really ringfenced other than your salary has to be what is paid into the pension via SalSac but no reason you can't shift your funds around to allow that. 
Or you could open a SIPP to pay the money into but then won't get the benefit of reduced NI payments.

penners324

Any payments from non work will have 25% tax added by the pension company.

They'll be somewhere in your online portal about how to make this payment, ie bank details and reference 

Gaberdeen

jimjames said:

Gaberdeen said:

What I'm unsure about is how this works when you top-up your pension with cash that comes from outside of the employer. i.e. from the sale of a property or investments - Is it even possible to do this or would another pension need to be started?

No reason why you couldn't reduce your salary by the amount of the investment sale and use your investment proceeds to pay your bills for a few months instead of wages. The money isn't really ringfenced other than your salary has to be what is paid into the pension via SalSac but no reason you can't shift your funds around to allow that. 
Or you could open a SIPP to pay the money into but then won't get the benefit of reduced NI payments.

Thank you for your response

This is indeed my plan, to max out my pension contributions to NMW and live off investment returns going forward - however if I wanted to contribute more to the pension on top of this, I'm not sure how I'd go about it.

Thanks again.

Gaberdeen

penners324 said:

Any payments from non work will have 25% tax added by the pension company.

They'll be somewhere in your online portal about how to make this payment, ie bank details and reference 

Thanks for replying

My company is in the process of moving to a master-trust based administrator at the moment and I do not currently have any paperwork or login details - I have sent a polite email to their customer services.

Thanks again.

kimwp

penners324 said:

Any payments from non work will have 25% tax added by the pension company.

They'll be somewhere in your online portal about how to make this payment, ie bank details and reference 

Not necessarily automatically. Check with the company - the one that my pension is with does not do this automatically.

kimwp

NB, are you paying into a LISA? It's different for every situation, but I worked out for me that under the 40% tax threshold (and paying more than the company matches), it was more beneficial to pay into a LISA than do sal sac. For me, the calcs were:
Pension sal sac - no tax or NI on the way in, but 15% tax on the way out (accounting for 25% tax free and that I was already going to be over the personal allowance in retirement.)
LISA- 8% NI on the way in, no tax or NI on the way out.
If it's pension from your takehome pay, you pay NI on the way in, 8%, and 15% on the way out

Albermarle

penners324 said:

Any payments from non work will have 25% tax added by the pension company.

They'll be somewhere in your online portal about how to make this payment, ie bank details and reference 

Normally yes and I did this with my workplace salsac scheme. I added a lump sum and 25% was added.
However there have been threads on the forum where this has not worked, as the provider treated all contributions as salsac as their system could not cope with two different types of contributions.
The contributor than had to engage with HMRC at length to get the tax relief paid.
So it should be checked in advance with the workplace provider.

Marcon

Gaberdeen said:

What I'm unsure about is how this works when you top-up your pension with cash that comes from outside of the employer. i.e. from the sale of a property or investments - Is it even possible to do this or would another pension need to be started?

Proceeds from selling a property, or income from investments, don't count as 'relevant earnings' for pension purposes, so you can't contribute those and get tax relief (and with most pension schemes you can't contribute them full stop).

If you've already sacrificed down to minimum wage, the gross amount of any personal contributions (ie including tax relief) can't exceed your remaining gross pay. There's nothing to stop you paying this amount into your workplace scheme, but it would have to be done as a personal contribution rather than salary sacrifice, to ensure your employer is still paying you the required minimum wage.

Gaberdeen

kimwp said:

NB, are you paying into a LISA? It's different for every situation, but I worked out for me that under the 40% tax threshold (and paying more than the company matches), it was more beneficial to pay into a LISA than do sal sac. For me, the calcs were:
Pension sal sac - no tax or NI on the way in, but 15% tax on the way out (accounting for 25% tax free and that I was already going to be over the personal allowance in retirement.)
LISA- 8% NI on the way in, no tax or NI on the way out.
If it's pension from your takehome pay, you pay NI on the way in, 8%, and 15% on the way out

Hi There,

I'm too old to start a LISA I'm afraid (and was over 40 when they were introduced) so this would not be possible for me.

Thanks for your response.