Salary sacrifice and annual income

lucyandthomas

Hi

My husband is looking at retirement in summer 2026, age 53.

His pension contributions are paid by salary sacrifice.

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Two questions:
1. Are we correct in thinking that, as salary sacrificed pension counts as employer contributions, it won’t matter that his earnings are less than the amount added to his pension? 

2. Can he also make personal contributions to his pension up to whatever he has earned? 

Many thanks

Marcon

lucyandthomas said:

Hi

My husband is looking at retirement in summer 2026, age 53.

His pension contributions are paid by salary sacrifice.

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Two questions:
1. Are we correct in thinking that, as salary sacrificed pension counts as employer contributions, it won’t matter that his earnings are less than the amount added to his pension? 

2. Can he also make personal contributions to his pension up to whatever he has earned? 

Many thanks

1. Yes.
2. Yes - but beware. You need to think in 'gross' terms - ie the amount he pays in + basic rate tax relief. He can't pay in 100% of his earnings; he'd pay in 80% and the provider would add the tax top up direct to his pension 'pot'.

lucyandthomas said:

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Not quite sure what you're saying here. If he doesn't have taxable income of at least £12,570 (from all sources - could include, say, taxable interest on savings) in 2026/27, then he won't use his full personal tax allowance for that year. If it isn't used in the year, it will be lost. Salary sacrifice for April-June 2026 would still be the better option for him because of the NI saving.

Dazed_and_C0nfused

Marcon said:

lucyandthomas said:

Hi

My husband is looking at retirement in summer 2026, age 53.

His pension contributions are paid by salary sacrifice.

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Two questions:
1. Are we correct in thinking that, as salary sacrificed pension counts as employer contributions, it won’t matter that his earnings are less than the amount added to his pension? 

2. Can he also make personal contributions to his pension up to whatever he has earned? 

Many thanks

1. Yes.
2. Yes - but beware. You need to think in 'gross' terms - ie the amount he pays in + basic rate tax relief. He can't pay in 100% of his earnings; he'd pay in 80% and the provider would add the tax top up direct to his pension 'pot'.

lucyandthomas said:

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Not quite sure what you're saying here. If he doesn't have taxable income of at least £12,570 (from all sources - could include, say, taxable interest on savings) in 2026/27, then he won't use his full personal tax allowance for that year. If it isn't used in the year, it will be lost. Salary sacrifice for April-June 2026 would still be the better option for him because of the NI saving.

Doesn't that depend on the overall position for the whole tax year?

Salary sacrifice isn't great it it avoids 8% NI but ultimately doesn't avoid any income tax.

A net pay contribution might be a better option (from the introduction of the new Low Earners Anomaly payment HMRC will be making but that is new territory so I wouldn't bank on it).

Relief at source would mean basic rate relief was definitely received, even for a non taxpayer.

Marcon

Dazed_and_C0nfused said:

Marcon said:

lucyandthomas said:

Hi

My husband is looking at retirement in summer 2026, age 53.

His pension contributions are paid by salary sacrifice.

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Two questions:
1. Are we correct in thinking that, as salary sacrificed pension counts as employer contributions, it won’t matter that his earnings are less than the amount added to his pension? 

2. Can he also make personal contributions to his pension up to whatever he has earned? 

Many thanks

1. Yes.
2. Yes - but beware. You need to think in 'gross' terms - ie the amount he pays in + basic rate tax relief. He can't pay in 100% of his earnings; he'd pay in 80% and the provider would add the tax top up direct to his pension 'pot'.

lucyandthomas said:

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Not quite sure what you're saying here. If he doesn't have taxable income of at least £12,570 (from all sources - could include, say, taxable interest on savings) in 2026/27, then he won't use his full personal tax allowance for that year. If it isn't used in the year, it will be lost. Salary sacrifice for April-June 2026 would still be the better option for him because of the NI saving.

Doesn't that depend on the overall position for the whole tax year?

You're right, of course. I'd mentally gone one stage further to a position where OP's husband did use his full personal allowance for 26/27...

zagfles

lucyandthomas said:

Hi

My husband is looking at retirement in summer 2026, age 53.

His pension contributions are paid by salary sacrifice.

He wants to take full advantage of 12570 personal allowance for 26/27 tax year, as he won’t be able to access pension (age 53) and use it with that.

If he salary sacrifices down to minimum wage in April/May/June 2026, he will exceed the 12570 in his pension, but his earnings will be approx three times minimum wage (and therefore less than 12570). 

Two questions:
1. Are we correct in thinking that, as salary sacrificed pension counts as employer contributions, it won’t matter that his earnings are less than the amount added to his pension? 

2. Can he also make personal contributions to his pension up to whatever he has earned? 

Many thanks

If he wants to take full advantage of the 12570 PA in 26/27 then why is he sal sac'ing down to min wage, which will be less than 12570 over 3 months as you say? Does he have other income to use the rest of the PA?

If not it might be better to sal sac down to 12570 over the 3 months. Remember that final pay may include stuff like accrued holiday pay.

Depending how much he earns, it might be better to do this in a "lumpy" way if the scheme allows it and he CBA (eg sal sac down to min wage for 2 months and sal sac whatever is required to make total income 12570 in the third). 

FIREDreamer

He cannot access his pension until 57 probably - four years of wasted personal allowance to consider?

lucyandthomas

Thanks for all your responses. 

Some more info, working April/May/June isn’t cast in stone. Could work for longer. Salary is £97k plus 15k car/fuel/healthcare. £500 savings interest. Potential bonus 20k - could be taken as salary in March 26 (and would be taxed at 40%) or added to pension in which case Aviva would view it as 26/27 contribution (arrives with Aviva mid April 26). 

So, he wants to make full use of personal allowance and get as much into pension as poss for 26/27 but not to work any longer than necessary to achieve this. If he does get 20k bonus and it is sacrificed into pension, how many months in 26/27 tax year does he need to work?

Aware that he can’t access his pension until 57, and unless he earns elsewhere, he won’t make full use of personal allowance until he reaches 57. 

Many thanks for all thoughts

QrizB

lucyandthomas said:

So, he wants to make full use of personal allowance and get as much into pension as poss for 26/27 but not to work any longer than necessary to achieve this.

Adult minimum wage is due to be £12.21ph for 2025/26. We don't know yet what it will be for 26/27 but if it doesn't change, he'll need to work for 1029 hours to reach the £12570 threshold.

Assuming a 40-hour week that's almost 26 weeks, six months.

He can salsac less and get there quicker, but that means less into his pension.

(I've not done any detailed pension contribution sums, but half a year at £97+15k plus a £20k bonus, less £12k of NMW, would give you a ~£66k contribution. Is there any carry-forward available?)

lucyandthomas

QrizB said:

lucyandthomas said:

So, he wants to make full use of personal allowance and get as much into pension as poss for 26/27 but not to work any longer than necessary to achieve this.

Adult minimum wage is due to be £12.21ph for 2025/26. We don't know yet what it will be for 26/27 but if it doesn't change, he'll need to work for 1029 hours to reach the £12570 threshold.

Assuming a 40-hour week that's almost 26 weeks, six months.

He can salsac less and get there quicker, but that means less into his pension.

(I've not done any detailed pension contribution sums, but half a year at £97+15k plus a £20k bonus, less £12k of NMW, would give you a ~£66k contribution. Is there any carry-forward available?)

Carry forward is used up, so 60k available.

zagfles

lucyandthomas said:

QrizB said:

lucyandthomas said:

So, he wants to make full use of personal allowance and get as much into pension as poss for 26/27 but not to work any longer than necessary to achieve this.

Adult minimum wage is due to be £12.21ph for 2025/26. We don't know yet what it will be for 26/27 but if it doesn't change, he'll need to work for 1029 hours to reach the £12570 threshold.

Assuming a 40-hour week that's almost 26 weeks, six months.

He can salsac less and get there quicker, but that means less into his pension.

(I've not done any detailed pension contribution sums, but half a year at £97+15k plus a £20k bonus, less £12k of NMW, would give you a ~£66k contribution. Is there any carry-forward available?)

Carry forward is used up, so 60k available.

So as well us making use of the full PA does he want to get the full £60k AA into pensions? What are the employer's base contributions?

lucyandthomas

Employers base contribution is 6%, employees is 4%.

He wants to use the 12570 personal allowance for 26/27, and to get as much as possible into his pension in the time it takes to fully use his personal allowance. Doesn’t have to be the full 60k. I suppose the question is, how many months would he need to work to fully utilize his personal allowance, and how much could he get into his pension in that time? And how much longer would he have to work to fully utilise his personal allowance AND get 60k into his pension.

many thanks