Yes I know these are basic questions but......

micklesthwaite

I can't for life of me find the answers already on the forum.

I was auto enrolled in a Nest pension with my employer. I’m paying the basic 5% of the qualifying amount and the employer 3%. If anyone is able to answer it’ll be bound to generate a few more questions.

1.I understand that I’m not paying income tax on my contribution before it is paid, but am I paying national insurance on it?

2.Do I have the right to increase my contributions or could the employer refuse?

3.If I do increase my contribution does the employer’s contribution have to increase or is their minimum obligation still 3% of (salary – £6240)? Martin Lewis’s video seems to suggest if I decide to put in £80 then the taxman will return £20 and the employer will put in £60, making £160 in total. But what if £60 is more than the 3% of salary - £6420?

4.If I open a Sipp with another provider and put say £100 month into it, does the employer have to arrange the payment directly from my salary or do I pay it after being taxed and the tax is recovered by the Sipp provider?

5. Is there any way to avoid national insurance on pension contributions?

Thanks for any answers
M

Marcon

1.I understand that I’m not paying income tax on my contribution before it is paid, but am I paying national insurance on it?

2.Do I have the right to increase my contributions or could the employer refuse?

3.If I do increase my contribution does the employer’s contribution have to increase or is their minimum obligation still 3% of (salary – £6240)? Martin Lewis’s video seems to suggest if I decide to put in £80 then the taxman will return £20 and the employer will put in £60, making £160 in total. But what if £60 is more than the 3% of salary - £6420?

4.If I open a Sipp with another provider and put say £100 month into it, does the employer have to arrange the payment directly from my salary or do I pay it after being taxed and the tax is recovered by the Sipp provider?

5. Is there any way to avoid national insurance on pension contributions?

1. If the contribution is made by salary sacrifice it isn't subject to NI. If you are making personal contributions (ie deducted from your pay) then those are subject to NI; and if you earn enough to pay tax, then the contribution is taken from your post-tax pay and NEST adds the 'tax top up'
2. Yes, you can increase your gross (ie including tax relief) personal contributions to 100% of your earnings in the tax year (you're nowhere near the 'Annual Allowance' so let's not complicate things!) - that would include any contributions you decide to make to a SIPP
3. The employer is not obliged to pay more than the statutory minimum contribution unless your contract says otherwise
4. No, the employer doesn't have to pay from your salary and is highly unlikely to. You'd pay out of your post-tax salary and the provider would claim basic rate relief and add it to your SIPP
5. Salary sacrifice if your employer offers it.

El_Torro

1. The most common way to avoid NI contributions is if your employer pays into your pension via salary sacrifice. If your employer isn't currently doing this then chances are you are paying NI on your personal contribution.
2. Your employer can refuse to increase your contributions. They shouldn't, but they can, if they simply can't be bothered to do it.
3. The employer doesn't have to go above 3%, regardless of how much you are contributing. That doesn't necessarily mean that it is a bad idea to increase your contributions though. Assuming your employer isn't using salary sacrifice then paying into a private pension may be just as beneficial. One benefit is you won't have to pay into Nest (not a terrible pension provider, but not the best either).
4. You will probably have to make the contribution yourself, your employer can pay into one of your choice but most refuse to (due to the increased admin). The pension provider will reclaim the 20% Income Tax for you. If you are a 40% or more tax payer you will have to reclaim the rest yourself via HMRC.
5. By moving to an employer which uses salary sacrifice. There is a benefit tax-wise for your current employer to use salary sacrifice, but if they're not currently taking advantage of it then you asking them to do it probably won't come to anything.

One thing to bear in mind about salary sacrifice: The plan is to make it less generous in a couple of years time. This was announced in the last government Budget.

Linton

1. You pay NI on your gross salary before deduction of pension contributions
2. Dont know if there is a legal duty to support extra employee contributions. I havent heard of any that dont.
3. The employer does not have to match increased employee pension contributions though many will, at least partially.
4. The employer does not have to arrange payment into an external pension and from previous posts it would seem very few would agree to do it. The admin to support every employee using a different pension scheme could be horrendous.
5. Avoiding NI is the main benefit of "Salary Sacrifice" whereby the employer decreases your gross salary (thus reducing your tax and NI) and increases the employers pension contribution which also has the benefit of reducing the employers NI. This is such a blatent loophole that it would not be surprising if a future budget prevented it.

Marcon

Your employer can refuse to increase your contributions. They shouldn't, but they can, if they simply can't be bothered to do it.

Just to clarify - nothing to stop OP increasing their NEST contributions themself:

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/contributions/contributions-paid-into-retirement-pot.html

Marcon

Avoiding NI is the main benefit of "Salary Sacrifice" whereby the employer decreases your gross salary (thus reducing your tax and NI) and increases the employers pension contribution which also has the benefit of reducing the employers NI. This is such a blatent loophole that it would not be surprising if a future budget prevented it.

Already been addressed in the last budget: https://www.gov.uk/government/publications/changes-to-salary-sacrifice-for-pensions-from-april-2029/changes-to-salary-sacrifice-for-pensions-from-april-2029

Albermarle

Your employer can refuse to increase your contributions. They shouldn't, but they can, if they simply can't be bothered to do it.

What they may do is only allow you to change your contributions once or twice a year, to save admin. You would need to check.

micklesthwaite

Thanks for the answers, most helpful.

It looks like the only real tax breaks at basic rate are the NI relief on salary sacrifice and the growth on the income tax contributed before you essentially pay income tax back when you draw down, as well as shielding your money from non-ISAed interest on savings interest. But all those benefits assume the pension pot is grown beyond that achieved by savings interest.

QrizB

It looks like the only real tax breaks at basic rate are the NI relief on salary sacrifice

There's also the fact you get 25% of it out tax-free. This is true even if you aren't able to contribute by salary sacrifice.

But all those benefits assume the pension pot is grown beyond that achieved by savings interest.

For most of the last century-plus, investment returns have exceeded savings interest.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81942766#Comment_81942766

But all those benefits assume the pension pot is grown beyond that achieved by savings interest.

It depends on what the pension is invested in, but a typical work place pension default fund ( the one your money goes in, if you do not make a specific choice) will be well ahead of cash savings over a longer period.

There is always a small possibility that in future it does not work out like that, but seems pretty unlikely.

micklesthwaite

Yes, the Nest basic retirement age one I was enrolled in has made 8%/year on average, which was a pleasant surprise to discover.