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  • FIRST POST
    • MS1982
    • By MS1982 10th Jan 18, 8:55 PM
    • 21Posts
    • 1Thanks
    MS1982
    Pension help
    • #1
    • 10th Jan 18, 8:55 PM
    Pension help 10th Jan 18 at 8:55 PM
    I've just received notification that my workplace pension has been set up. It's a relatively new company so I believe there's a grace period for them to do so, which must have just expired.

    I earn 50,000 so was hoping to make large contributions and claim higher tax relief. However, I've been told that only pay between 5,000 and 45,000 is eligible. Does this mean I can't do that, or just that my contributions will be lower?

    The highest amount they'll match is if I put in 5% and they'll do 3%.

    Should I bother putting in more than 5% in that case? Do I need to do anything to claim higher tax relief, or is that not possible? I'm a bit lost with this at the moment and the literature isn't very clear.
Page 1
    • Dazed and confused
    • By Dazed and confused 10th Jan 18, 9:37 PM
    • 2,644 Posts
    • 1,267 Thanks
    Dazed and confused
    • #2
    • 10th Jan 18, 9:37 PM
    • #2
    • 10th Jan 18, 9:37 PM
    If your total taxable income is 50,000 then you don't need to make large contributions to claim maximum higher rate relief.

    Or do you mean you want it make large contributions. And claim whatever higher rate relief you can even if that is only a very small amount?

    For the forthcoming tax year you will probably only be paying higher rate tax on about 3650 so a personal contribution of 7.3% would take you out of higher rate tax.
    • Paul_Herring
    • By Paul_Herring 10th Jan 18, 10:00 PM
    • 6,301 Posts
    • 3,012 Thanks
    Paul_Herring
    • #3
    • 10th Jan 18, 10:00 PM
    • #3
    • 10th Jan 18, 10:00 PM
    I've just received notification that my workplace pension has been set up. It's a relatively new company so I believe there's a grace period for them to do so, which must have just expired.

    I earn 50,000 so was hoping to make large contributions and claim higher tax relief. However, I've been told that only pay between 5,000 and 45,000 is eligible. Does this mean I can't do that, or just that my contributions will be lower?
    Originally posted by MS1982
    The phrase that's used to describe those numbers is "earnings threshold." - these are the lower and upper limits to your wage that MUST be used to calculate the percentages. Some companies simplify by using 0 for the lower amount, and may not have an upper limit, or somewhere inbetween.

    There is also a limit (above that lower limit mention) below which that they don't have to contribute at all.

    From http://www.thepensionsregulator.gov.uk/automatic-enrolment-earnings-threshold.aspx, for the current tax year, the calculation limits are 5,876 and 45,000, and contributions don't have to be paid unless the wage is above 10,000.

    The highest amount they'll match is if I put in 5% and they'll do 3%.
    So, subtract (using your numbers) 5,000 from your salary up to 45,000 and work out 5% of the remainder (40k*5%=2,000) and that will come off your gross, your employer will add 3% of that (1,200)

    Should I bother putting in more than 5% in that case? Do I need to do anything to claim higher tax relief, or is that not possible?
    Depends. Simply subtracting the 5% of wages withing the earnings thresholds (50,000-2,000) still leaves you paying 40% income tax on 3,000 of your wages. (From https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18 40% starts at 11,500+35,500=45,000)

    You can either increase your percentage to subtract 5,000 to get you to the top of the 20% income tax (again, using the numbers you've given that'll be 12.5%) to put the money into your work fund.

    Or you can contribute to a separate pension fund of your own out of net pay, get the pension fund to refund 20% of the tax paid, and complete a tax return to claim the remainder of the 40% on which it was paid.

    ---

    Note - numbers may not be exact, but hopefully I've got the principle correct...
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • MS1982
    • By MS1982 11th Jan 18, 8:48 AM
    • 21 Posts
    • 1 Thanks
    MS1982
    • #4
    • 11th Jan 18, 8:48 AM
    • #4
    • 11th Jan 18, 8:48 AM
    I was less concerned with reducing the income tax I pay than by claiming higher tax relief on pension contributions. I'd read this: https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/guides/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained

    Can I still claim 40% tax relief under those pension conditions work sent through? Do I need to contact HMRC to make that happen? Is that straightforward?
    • Paul_Herring
    • By Paul_Herring 11th Jan 18, 9:26 AM
    • 6,301 Posts
    • 3,012 Thanks
    Paul_Herring
    • #5
    • 11th Jan 18, 9:26 AM
    • #5
    • 11th Jan 18, 9:26 AM
    I was less concerned with reducing the income tax I pay than by claiming higher tax relief on pension contributions.
    Originally posted by MS1982
    They're exactly, and two ways of saying, the same thing. The tax relief is a refund of the income tax that's paid (except for salary under 11,500, where you still get relief even though tax wasn't paid on it.)

    Yes.

    Do I need to contact HMRC to make that happen? Is that straightforward?
    Depends. Presuming your work pension is salary sacrifice (i.e. before your wages hit the tax calculation) and you contribute the whole of the wages in the 40% tax band (the 12.5% in my previous post,) you need do nothing more.

    If it's taken from your wages after the tax calculation, or you make contributions out of post-tax income from your bank to another pension fund provider, you'll get half of that 40% immediately, and you'll need to fill out a self assessment (see https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief#if-you-pay-40-income-tax) to get the other half.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • AlanP
    • By AlanP 11th Jan 18, 1:06 PM
    • 1,206 Posts
    • 866 Thanks
    AlanP
    • #6
    • 11th Jan 18, 1:06 PM
    • #6
    • 11th Jan 18, 1:06 PM
    Depends. Presuming your work pension is salary sacrifice (i.e. before your wages hit the tax calculation) and you contribute the whole of the wages in the 40% tax band (the 12.5% in my previous post,) you need do nothing more.

    If it's taken from your wages after the tax calculation, or you make contributions out of post-tax income from your bank to another pension fund provider, you'll get half of that 40% immediately, and you'll need to fill out a self assessment (see https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief#if-you-pay-40-income-tax) to get the other half.
    Originally posted by Paul_Herring
    I don't think you mean Salary Sacrifice here, as that is where salary is "sacrificed" and the company make a larger contribution thus avoiding NI payment on the "scarificed" income.

    Your point about whether it is calculated / deducted pre or post the Income Tax calculation is valid, just querying the terminology.
    • Paul_Herring
    • By Paul_Herring 11th Jan 18, 1:22 PM
    • 6,301 Posts
    • 3,012 Thanks
    Paul_Herring
    • #7
    • 11th Jan 18, 1:22 PM
    • #7
    • 11th Jan 18, 1:22 PM
    I don't think you mean Salary Sacrifice here, as that is where salary is "sacrificed" and the company make a larger contribution thus avoiding NI payment on the "scarificed" income.

    Your point about whether it is calculated / deducted pre or post the Income Tax calculation is valid, just querying the terminology.
    Originally posted by AlanP
    It's not clear by what you mean by 'here' since in the bit you quoted, I talk about both salary sacrifice and paying out of net pay.

    Salary sacrifice is where it's taken off your gross pay before anything else happens to it. Like working out calculating NI or income tax - those are applied to the amount after the subtraction of the pension.

    As a result, the company also make a saving of their own, in not having to pay their side of national insurance on what would otherwise have been paid (not many coming into the world of contributing to pensions are aware of this,) however the company is not obligated to add this to the contribution - they may simply keep it. (More enlightened companies give you the whole lot - since it's cost-neutral to them. The less enlightened keep hold of it to, e.g., 'pay for admin for the scheme.' Others may be in-between.)

    At the other end of the scale, there's paying it out your net pay instead, after it's gone through all the calculations. Which was the second paragraph you quoted.

    I'm vaguely aware of something in between those, but haven't quite got my head around it. There'll, no doubt, be someone along shortly to point out where I've gone wrong
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
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