Pension contribution help? Confused

fromtheshires

Hey all

I’m going to need a bit of hand holding here as I’m not really sure what I’m doing.

Due to a change in circumstances, I’m starting a part time job 22.5hr at just above NMW. As I’ve always had well paid jobs, I haven’t really had to think too hard about pensions before as its always been salary sacrifice.

Because its basically NMW, I cannot join the salary sacrifice scheme. The AE scheme only lets me put in a maximum of 5% so I would need to join the salary sacrifice scheme but opt out of using salary sacrifice and claim back tax relief. The employer will match up to 5% using this method.

I want to put in as much as possible into the pension (we can comfortably live off my husband’s wages) but still have money to play about with for misc spending, S&S ISA etc so put 25% in the box for pension contributions on the take home pay calculator website.

On the website, it only lets me put in qualifying earnings for pension. Am I missing something as it shows that I would only be paying £2157.68 a year into the pension. The calculations I have used for salary is the NMW from April as I imagine this is what my new salary would be in April. 

Any experts able to help here?

Dazed_and_C0nfused

fromtheshires said:

Hey all

I’m going to need a bit of hand holding here as I’m not really sure what I’m doing.

Due to a change in circumstances, I’m starting a part time job 22.5hr at just above NMW. As I’ve always had well paid jobs, I haven’t really had to think too hard about pensions before as its always been salary sacrifice.

Because its basically NMW, I cannot join the salary sacrifice scheme. The AE scheme only lets me put in a maximum of 5% so I would need to join the salary sacrifice scheme but opt out of using salary sacrifice and claim back tax relief. The employer will match up to 5% using this method.

I want to put in as much as possible into the pension (we can comfortably live off my husband’s wages) but still have money to play about with for misc spending, S&S ISA etc so put 25% in the box for pension contributions on the take home pay calculator website.

On the website, it only lets me put in qualifying earnings for pension. Am I missing something as it shows that I would only be paying £2157.68 a year into the pension. The calculations I have used for salary is the NMW from April as I imagine this is what my new salary would be in April. 

Any experts able to help here?

Are you quite certain that 5% is the maximum, and not simply the minimum/standard amount?

Would you consider opening a SIPP or personal pension to run alongside the employer pension?

zagfles

See Qualifying earnings calculation | Nest pensions 
NMW in April is £12.71 so about £14871 for 22.5h/week. Qualifying earnings would be 14871-6240 = 8631 and 25% of that would be £2157.75. 
You could put a highr % in if that's not enough. 

Marcon

fromtheshires said:

Because its basically NMW, I cannot join the salary sacrifice scheme. The AE scheme only lets me put in a maximum of 5% so I would need to join the salary sacrifice scheme but opt out of using salary sacrifice and claim back tax relief. The employer will match up to 5% using this method.

On the website, it only lets me put in qualifying earnings for pension. Am I missing something as it shows that I would only be paying £2157.68 a year into the pension. The calc

This sounds very complicated...probably more so than it needs to be!

What's the auto enrolment scheme your employer is using?

Which website are you talking about?

Secret2ndAccount

Zagfles answered your question.  Qualifying earnings is the technical term. Employers are not required to pay pension contribs on all of your salary. They don’t have to pay it on the first £6240 per tax year. They are paying it on the rest. It appears the website is only calculating your sacrifice % out of the qualifying bit instead of the whole salary. That seems a bit odd, but it’s possible I guess. Check this is how your employer actually deducts sacrifice contribs.

The first £6240 they pay it to you and don’t take any pension

The remaining £8631 they contribute 5% into your pension, which is £431. And you contribute whatever percentage you set.

If you wanted to pay ¼ of your total salary into the pension, you would need to set your contribution rate at 43%. 43% of £8631 is £3717.  So £3717 (plus £431) to your pension, and £11,154 to your pocket.

But I don’t think this is the best way if these are your only earnings:

Go the simple, AE route, and get 5% from you and 5% from your employer.

Open a SIPP and pay in £3,200 from your take home pay. The SIPP will add £800 in tax relief, even though you haven’t paid £800 in tax. This is a bit more hassle, but pays a bit more tax relief.

Another possibility is to go with the salary sacrifice plan A, but transfer £1,260 of your personal allowance to your husband (assuming he is a 20% taxpayer). This is only allowed if your income stays below £12,570 after sacrifice. His tax bill will go down by £252, and you still don’t pay any tax. This would get messy if you did extra hours and tipped over £12,570 after sacrifice.

It’s all pretty close as to which returns the best results: £100 here or there. Depends how much time you want to spend on it, or what you see as the pros and cons.

fromtheshires

Thanks all for the replies.

Looks like Zagfles solved the problem and then secret2ndaccount expanded it.

Sadly, I cant transfer my personal allowance to my husband (6 figure earner) as that's the first thing I looked at when I had to give up work for a couple of years. 

zagfles

Secret2ndAccount said:

Zagfles answered your question.  Qualifying earnings is the technical term. Employers are not required to pay pension contribs on all of your salary. They don’t have to pay it on the first £6240 per tax year. They are paying it on the rest. It appears the website is only calculating your sacrifice % out of the qualifying bit instead of the whole salary. That seems a bit odd, but it’s possible I guess. Check this is how your employer actually deducts sacrifice contribs.

The first £6240 they pay it to you and don’t take any pension

The remaining £8631 they contribute 5% into your pension, which is £431. And you contribute whatever percentage you set.

If you wanted to pay ¼ of your total salary into the pension, you would need to set your contribution rate at 43%. 43% of £8631 is £3717.  So £3717 (plus £431) to your pension, and £11,154 to your pocket.

But I don’t think this is the best way if these are your only earnings:

Go the simple, AE route, and get 5% from you and 5% from your employer.

Open a SIPP and pay in £3,200 from your take home pay. The SIPP will add £800 in tax relief, even though you haven’t paid £800 in tax. This is a bit more hassle, but pays a bit more tax relief.

Another possibility is to go with the salary sacrifice plan A, but transfer £1,260 of your personal allowance to your husband (assuming he is a 20% taxpayer). This is only allowed if your income stays below £12,570 after sacrifice. His tax bill will go down by £252, and you still don’t pay any tax. This would get messy if you did extra hours and tipped over £12,570 after sacrifice.

It’s all pretty close as to which returns the best results: £100 here or there. Depends how much time you want to spend on it, or what you see as the pros and cons.

OP can't use sal sac due to NMW. 

OP - it's unclear how your pension contributions are taken, you said "so I would need to join the salary sacrifice scheme but opt out of using salary sacrifice and claim back tax relief", so it sounds like this is the net pay top up where HMRC gives tax relief to people in net pay arrangements where full tax relief can't be given via payroll because net income is below the personal allowance? Explained here: What is the tax top-up scheme? - now:pensions 

Or if it's a RAS scheme (eg NEST) then it's all taken care of by the pension scheme claiming the tax relief, no further relief to be claimed as you're a basic rate taxpayer.