Whole salary into pension

Bimbly

Is this right? In the scenario below, I am aiming to get maximum tax relief with my 'post tax contribution'. Using example figures for ease.

Salary: £30,000

Salary Sacrifice: £10,000

Taxed income: £20,000*

Post tax contribution: £16,000 - government adds £4,000 (20% of £20k) - making a total of £20,000.

So even though £12,750 was below the income tax threshold and I also paid national insurance on this sum, I can still put the whole lot into my pension for the tax relief?

* The Salary Calculator says I would have paid £1,486 income tax and £594.40 NI on £20,000.

EDIT TO ADD: I know I cannot salary sacrifice below minimum wage, which is why I'm asking about making contributions with taxed income (ie, money I have actually been paid, which I will add as an employee contribution for the pension company to claim the 20% tax relief from the government).

dharm999

AIUI you can’t salary sacrifice below minimum wage, so work out what your annual salary would be based on minimum wage and weekly hours and then sacrifice to that level. That may well mean the amount you pay from your net pay is bigger than the £16k in your example.

JoeCrystal

Have you considered that you cannot salary sacrifice beneath your minimum wage? Which is currently £12.71 an hour off the top of my head. (Roughly £24,784.50 a year assuming you are paid 37.5 hours a week or even £26,436.80 if you are paid 40 hours a week aka paid break))

Bimbly

Not sure why commenters seem to think this question is about salary sacrifice, which it isn't.

What I am actually doing is salary sacrificing down to minimum wage. This means, I still get paid some money! I want to use this money to put into the pension as an employee contribution after tax.

QrizB

Not sure why commenters seem to think this question is about salary sacrifice, which it isn't.

It'll be because £20k pa is less than minimum wage for most full-time workers.

£12.71ph x 37h x 52w = £24454 per year.

Are you sure you can salsac down to £20k? You'd need to be working 30 hours a week or less, or aged under 21.

This means, I still get paid some money! I want to use this money to put into the pension as an employee contribution after tax.

Yes, you can. If you can salsac down to £20k gross, you'll be able to pay £16k into a RAS pension.

Bimbly

It'll be because £20k pa is less than minimum wage for most full-time workers.

Oh sorry. I was only using these figures for the examples.

I have salary sacrificed down to minimum wage. Minimum wage would be £23,132 (as far as I can work out) and I'm SS to a bit above that to give some leeway. I asked payroll what the actual figure would be, but they were clueless.

Actual figures are more messy as I only upped my SS in July due to pending redundancy. My plan would be put the rest of my salary into the pension when I stop work and live off the tax free bit of my redundancy. But all that gets complicated and I really didn't want to go into all that for the sake of a simple question.

Secret2ndAccount

Your calculations are correct. The tax relief is paid into your pension, whether you actually paid any tax or not. Someone earning £12,500 could pay no income tax. They could put 10k into a pension and see it uplifted to 12.5k, and still have 2.5k in their pocket.

Does your employer pay a contribution? So you might earn 30k and end up with 32k going into your pension. This is also permitted.

Bimbly

Does your employer pay a contribution? 

I have a DB pension with my employer which is separate. The pension I am referring to here is a DC top-up pension which is also run by my employer. They contribute up to £300 a year (I think they match up to £25 a month, if I recall). So no extra employer contributions are available - I've been maxing those out for years.

dharm999

Having a DB pension complicates things I believe. The annual increase in the value of that counts toward your annual amount that you can pay in to a pension and claim tax relief on it. Others more knowledgeable than me can explain the exact rules. I don’t think this is a factor, but without knowing exact figures for the annual value of your DB pension, it’s impossible to accurately work out exactly how much you can put in to your DC pension and still claim tax relief on the contributions.

Bimbly

Having a DB pension complicates things I believe.

That's really part of a different question.

Suffice to say that I have massive amounts of headroom with carry forward to accommodate putting a lump sum into my DC pension. I did a rough calculation of my Pension Input Amount (the DB thing which is relevant) and it came out at less than £5k. So I could put all my earnings into the pension and still have an allowance of £70k unused. Back of a fag packet calculations (should we say vape wrapper these days?).

kermchem

Everyone under the age of 75 can contribute £2880 to a pension, and their provider will claim £720 from HMRC and it it to the pot, whether they have paid any tax at all that year or not. It is called "tax-relief" even if they have not paid tax. This applies to a 5 year old child with pension funded by parent or grandparent, equally to a 65 year old with no earned income who is living on inheritance, savings or higher paid spouse / partner.

Anyone with earned income (not savings, investments, dividends, buy to let, etc) can contribute 80% of their earnings, and HMRC will add the 20% as tax-relief. Yes, you will get tax relief that exceeds the income tax and NI that you have paid. Employer contributions do not matter (yet!). You do need to find some other source (spouse, inheritance) to live on.

But, the annual allowance of £60K limits the total of your contributions (gross of the tax relief), employer contributions, and for DB schemes the amount by which the value of the pension has increased during the tax year - a number that cannot be calculated until well into the next tax year! You can carry forward unused allowance from last 3 years.

Every year, in build up to the Budget there is press coverage of how generous pension tax relief is to high earners. Wrong, the relief can potentially be equally generous to the low paid.

Yes, you cannot salary sacrifice below minimum wage. Actually, the legal onus is that an employer operating a salary sacrifice scheme cannot pay below minimum wage. Operating salsac means an employer really needs to calculate and check the hourly pay of every employee, even if on £100K.

My OH has funded pensions for 2 tax years with (80%) of all of their salary, and received tax relief that exceeds the income tax and NI they have paid. Depending on how you view it, I gave my redundancy to fund the contributions, or OH is living on fresh air and I am paying for everything for two years from my redundancy.