Final wage, additional pension payment advice please

Asimovs_nightfall

I’m looking for some sage advice please on the scenario below.

I retire at the end of July this year.  I want to put a lump sum into my pension in my last wage out of an additional payment I receive.  By this time to the end of July and for the purpose of this scenario, I will have earned £25,000 (gross pay for tax) and I will have paid £10,000 into my pension.  

Is this then a simple calculation that means I could theoretically, add an additional payment of £15,000 from my final wage into the pension without tax penalties and to make the final wage more pension/tax efficient?  Or are there tax implications that mean the amount I can additionally pay into my pension is lower than £15,000?

I'm not sure how this is calculated, so any advice is welcome.

MallyGirl

you can contribute up to your earned salary GROSS into a pension. You need to factor in tax relief so it depends on how the payment will be made as to what amount is right.

Marcon

Asimovs_nightfall said:

I’m looking for some sage advice please on the scenario below.

I retire at the end of July this year.  I want to put a lump sum into my pension in my last wage out of an additional payment I receive.  By this time to the end of July and for the purpose of this scenario, I will have earned £25,000 (gross pay for tax) and I will have paid £10,000 into my pension.  

Is this then a simple calculation that means I could theoretically, add an additional payment of £15,000 from my final wage into the pension without tax penalties and to make the final wage more pension/tax efficient?  Or are there tax implications that mean the amount I can additionally pay into my pension is lower than £15,000?

I'm not sure how this is calculated, so any advice is welcome.

Which of the following applies:

• you pay your contributions by salary sacrifice
• you pay your contributions by deduction from your net pay (ie your pay after tax has been deducted)
• you pay your contributions by deduction from your gross salary (ie before your pay has been taxed)
• a mixture of two of the above!

The answer you get, as pointed out in the previous post, will depend on the method... 

Asimovs_nightfall

MallyGirl said:

you can contribute up to your earned salary GROSS into a pension. You need to factor in tax relief so it depends on how the payment will be made as to what amount is right.

Thanks.  How can I calculate that tax relief to factor in? Any idea what I need to look at? 

Asimovs_nightfall

Marcon said:

Asimovs_nightfall said:

I’m looking for some sage advice please on the scenario below.

I retire at the end of July this year.  I want to put a lump sum into my pension in my last wage out of an additional payment I receive.  By this time to the end of July and for the purpose of this scenario, I will have earned £25,000 (gross pay for tax) and I will have paid £10,000 into my pension.  

Is this then a simple calculation that means I could theoretically, add an additional payment of £15,000 from my final wage into the pension without tax penalties and to make the final wage more pension/tax efficient?  Or are there tax implications that mean the amount I can additionally pay into my pension is lower than £15,000?

I'm not sure how this is calculated, so any advice is welcome.

Which of the following applies:

• you pay your contributions by salary sacrifice
• you pay your contributions by deduction from your net pay (ie your pay after tax has been deducted)
• you pay your contributions by deduction from your gross salary (ie before your pay has been taxed)
• a mixture of two of the above!

The answer you get, as pointed out in the previous post, will depend on the method... 

Thanks, again.

It's the USS so salary sacrifice, and pay into pension before gross salary.

MallyGirl

sal sac makes it easier but note that you cannot sal sac your pay below NLW

Albermarle

Due to the national minimum wage issue for salary sacrifice, you would probably be better making a lump sum contribution to a personal pension ( very easy to set up online).

So if you will have earned £25K by end of July and already salary sacrificed £10K of that.
Then your actual taxable salary is £15K .
So you can add £12K to your personal pension and £3K tax relief will be added automatically.
In fact however much you add will have tax relief added, but it is up to you not to add more than you are entitled to. 

Asimovs_nightfall

Albermarle said:

Due to the national minimum wage issue for salary sacrifice, you would probably be better making a lump sum contribution to a personal pension ( very easy to set up online).

So if you will have earned £25K by end of July and already salary sacrificed £10K of that.
Then your actual taxable salary is £15K .
So you can add £12K to your personal pension and £3K tax relief will be added automatically.
In fact however much you add will have tax relief added, but it is up to you not to add more than you are entitled to. 

Thanks. Can you give me a dummy's guide to this please? 

If I were to pay into the pension £12,000 I would attract £3,000 tax relief, but to input it into my pension would mean I violate the NMW issue, is this correct?  Yet if I were to put the same amount into a personal pension, then it would again attract the £3,000 tax relief but under this circumstance it would not violate the NMW issue - is this correct?

Thanks to all for your informed comments.

Dazed_and_C0nfused

Asimovs_nightfall said:

Albermarle said:

Due to the national minimum wage issue for salary sacrifice, you would probably be better making a lump sum contribution to a personal pension ( very easy to set up online).

So if you will have earned £25K by end of July and already salary sacrificed £10K of that.
Then your actual taxable salary is £15K .
So you can add £12K to your personal pension and £3K tax relief will be added automatically.
In fact however much you add will have tax relief added, but it is up to you not to add more than you are entitled to. 

Thanks. Can you give me a dummy's guide to this please? 

If I were to pay into the pension £12,000 I would attract £3,000 tax relief, but to input it into my pension would mean I violate the NMW issue, is this correct?  Yet if I were to put the same amount into a personal pension, then it would again attract the £3,000 tax relief but under this circumstance it would not violate the NMW issue - is this correct?

Thanks to all for your informed comments.

You don't get any pension tax relief with salary sacrifice.

If you sacrifice £12,000 then £12,000 is what will be added to your pension.  But you avoid paying tax and NI on the £12,000 earnings you no longer have.

With a personal (relief at source) contribution made to a SIPP you would get 25% added to what you pay.  So £12,000 from you has £3,000 in pension tax relief added giving you £15,000 in the pension.
NB.  £3,000 is 20% of the gross contribution.

Asimovs_nightfall

Dazed_and_C0nfused said:

Asimovs_nightfall said:

Albermarle said:

Due to the national minimum wage issue for salary sacrifice, you would probably be better making a lump sum contribution to a personal pension ( very easy to set up online).

So if you will have earned £25K by end of July and already salary sacrificed £10K of that.
Then your actual taxable salary is £15K .
So you can add £12K to your personal pension and £3K tax relief will be added automatically.
In fact however much you add will have tax relief added, but it is up to you not to add more than you are entitled to. 

Thanks. Can you give me a dummy's guide to this please? 

If I were to pay into the pension £12,000 I would attract £3,000 tax relief, but to input it into my pension would mean I violate the NMW issue, is this correct?  Yet if I were to put the same amount into a personal pension, then it would again attract the £3,000 tax relief but under this circumstance it would not violate the NMW issue - is this correct?

Thanks to all for your informed comments.

You don't get any pension tax relief with salary sacrifice.

If you sacrifice £12,000 then £12,000 is what will be added to your pension.  But you avoid paying tax and NI on the £12,000 earnings you no longer have.

With a personal (relief at source) contribution made to a SIPP you would get 25% added to what you pay.  So £12,000 from you has £3,000 in pension tax relief added giving you £15,000 in the pension.
NB.  £3,000 is 20% of the gross contribution.

I see, thanks.  This means that no tax is paid if I put a lump sum into the USS pension and in contrast, 25% tax relief if I pay it into a personal pension.  Does the latter fall foul of NMW rule?

If I can ask another follow up question; what would one do with a personal pension of £15,000?

DRS1

Asimovs_nightfall said:

Dazed_and_C0nfused said:

Asimovs_nightfall said:

Albermarle said:

Due to the national minimum wage issue for salary sacrifice, you would probably be better making a lump sum contribution to a personal pension ( very easy to set up online).

So if you will have earned £25K by end of July and already salary sacrificed £10K of that.
Then your actual taxable salary is £15K .
So you can add £12K to your personal pension and £3K tax relief will be added automatically.
In fact however much you add will have tax relief added, but it is up to you not to add more than you are entitled to. 

Thanks. Can you give me a dummy's guide to this please? 

If I were to pay into the pension £12,000 I would attract £3,000 tax relief, but to input it into my pension would mean I violate the NMW issue, is this correct?  Yet if I were to put the same amount into a personal pension, then it would again attract the £3,000 tax relief but under this circumstance it would not violate the NMW issue - is this correct?

Thanks to all for your informed comments.

You don't get any pension tax relief with salary sacrifice.

If you sacrifice £12,000 then £12,000 is what will be added to your pension.  But you avoid paying tax and NI on the £12,000 earnings you no longer have.

With a personal (relief at source) contribution made to a SIPP you would get 25% added to what you pay.  So £12,000 from you has £3,000 in pension tax relief added giving you £15,000 in the pension.
NB.  £3,000 is 20% of the gross contribution.

I see, thanks.  This means that no tax is paid if I put a lump sum into the USS pension and in contrast, 25% tax relief if I pay it into a personal pension.  Does the latter fall foul of NMW rule?

If I can ask another follow up question; what would one do with a personal pension of £15,000?

The NMW law only impacts salary sacrifice not your personal contributions to a SIPP.  This is because if you sacrifice ALL of your salary then your employer will not be paying you anything (which is obviously less than the minimum wage).  But if you make the contribution to the SIPP then your employer will have paid you the £15k (which presumably is more than your minimum wage).

Depending on your other income and personal allowance you may be able to extract the £15k from the SIPP without paying any tax on it.