Salary sacrifice for £150k+

mudassiraslam

Hi, a person gets a salary of £150k plus 10% annual bonus. The company contributes 15% into pension and employee contributes nil. Assuming the employee can afford to take a reduction in net take home, is it worth to cap the salary at £99k and put rest into the pension pot through company's salary sacrifice scheme? I tried using Aviva and others' salary sacrifice calculators online but I am not getting how much will the salary sacrifice benefit compared to no sacrifice. Appreciate if anyone can help? Thanks

Dazed_and_C0nfused

mudassiraslam said:

Hi, a person gets a salary of £150k plus 10% annual bonus. The company contributes 15% into pension and employee contributes nil. Assuming the employee can afford to take a reduction in net take home, is it worth to cap the salary at £99k and put rest into the pension pot through company's salary sacrifice scheme? I tried using Aviva and others' salary sacrifice calculators online but I am not getting how much will the salary sacrifice benefit compared to no sacrifice. Appreciate if anyone can help? Thanks

That would be a total employer contribution well in excess of £60k. 

Is there some unused annual allowance available to carry forward?

Does this person have any other taxable income?  Interest, dividends, company benefits etc.

mudassiraslam

Thanks. No unused allowance and no other income. Just PAYE of £150 + 10% bonus.

Marcon

Dazed_and_C0nfused said:

mudassiraslam said:

Hi, a person gets a salary of £150k plus 10% annual bonus. The company contributes 15% into pension and employee contributes nil. Assuming the employee can afford to take a reduction in net take home, is it worth to cap the salary at £99k and put rest into the pension pot through company's salary sacrifice scheme? I tried using Aviva and others' salary sacrifice calculators online but I am not getting how much will the salary sacrifice benefit compared to no sacrifice. Appreciate if anyone can help? Thanks

That would be a total employer contribution well in excess of £60k. 

Is there some unused annual allowance available to carry forward?

Does this person have any other taxable income?  Interest, dividends, company benefits etc.

The fact something is taxable doesn't automatically mean it counts as 'Net relevant earnings' for pension purposes. Net relevant earnings doesn't include interest or dividends, but could include taxable company benefits. https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

DRS1

Is the employer 15% contribution based on 150k or 165k?  If the latter then it is 24750 which leaves 35250 of the 60k annual allowance for salary sacrifice.

I think all of that 35250 would have been in the 45% tax band so saving 15862.50 in tax (not sure if there is any NIC saving at that level).

Why is there no unused annual allowance to carry forward?  What has been going on in the last three tax years?  No job?  No pension? Or pension contributions maxed out for those years?

Dazed_and_C0nfused

Marcon said:

Dazed_and_C0nfused said:

mudassiraslam said:

Hi, a person gets a salary of £150k plus 10% annual bonus. The company contributes 15% into pension and employee contributes nil. Assuming the employee can afford to take a reduction in net take home, is it worth to cap the salary at £99k and put rest into the pension pot through company's salary sacrifice scheme? I tried using Aviva and others' salary sacrifice calculators online but I am not getting how much will the salary sacrifice benefit compared to no sacrifice. Appreciate if anyone can help? Thanks

That would be a total employer contribution well in excess of £60k. 

Is there some unused annual allowance available to carry forward?

Does this person have any other taxable income?  Interest, dividends, company benefits etc.

The fact something is taxable doesn't automatically mean it counts as 'Net relevant earnings' for pension purposes. Net relevant earnings doesn't include interest or dividends, but could include taxable company benefits. https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

True but it would be relevant for tapered Personal Allowance purposes, which was what seemed to be a likely factor here.

Assuming the employee can afford to take a reduction in net take home, is it worth to cap the salary at £99k and put rest into the pension pot through company's salary sacrifice scheme? 

Cobbler_tone

I’m guessing this person is hypothetical because if you were earning £150k and not already contributing to a pension I’d be asking other questions! 

Exodi

mudassiraslam said:

Hi, a person gets a salary of £150k plus 10% annual bonus. The company contributes 15% into pension and employee contributes nil. Assuming the employee can afford to take a reduction in net take home, is it worth to cap the salary at £99k and put rest into the pension pot through company's salary sacrifice scheme? I tried using Aviva and others' salary sacrifice calculators online but I am not getting how much will the salary sacrifice benefit compared to no sacrifice. Appreciate if anyone can help? Thanks

I think the obvious thing (assuming they can afford to reduce net pay - and if not I'd be asking different questions), would be SS to the maximum you can get relief on, so £60k.

The employee contribution needed would depend on the agreement on employer NI. If the employer agreed to share it for example, the employee would need to SalSac £34,883.72. Obviously because they're paying 45% tax and 2% NI before it reaches their pay packet, it would 'only' reduce their net pay by £18,488.37.

(it's even better than this as they may get back some of their personal allowance, it's just too early to start calculating the benefit of that).

There are some variables (if employer keeps full employer NI saving, SalSac would need to be £2,616.28 higher, if they pass it all on, SalSac could be £2,275.02 lower. Likewise if the Employer Contributions are paid on the bonus as well, which I've assumed it will not in the above, then that also reduces the amount that can be sacrificed for tax relief).

For most, ~£18.5k out of your pay packet for ~£35k in your pension would be a no-brainer. From the scenario you've painted, it sounds inevitable the OP would not be paying additional tax rate in retirement so could draw-down at a lower rate than they saved paying in. There may also be a a one-time opportunity to use up any unused allowance from previous years.

Grumpy_chap

Exodi said:

I think the obvious thing (assuming they can afford to reduce net pay - and if not I'd be asking different questions), would be SS to the maximum you can get relief on, so £60k.

That will be £60k including the employer contributions that are made in any case.

Assuming there is no carry forward allowance available:

The OP states £150k base salary and 15% employer pension contributions.  £22.5k.  That would leave a further £37.5k which the OP could contribute to pension, via SS preferably.

If the employer contribution is 15% of the £150k + 10% bonus (£15k), then the employer contribution is £24.75k leaving a further £35.25k which the OP could contribute to pension.

For someone on £150k, they might well benefit from professional advice to ensure that their retirement provision is sufficient to meet their retirement needs in the future as well as tax efficient now.

Without carry forward, it will not be possible for the OP to SS down to the £99k they suggested.