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    • NorthernGeezer
    • By NorthernGeezer 5th Aug 18, 9:47 PM
    • 139Posts
    • 20Thanks
    Company Scheme v SIPP
    • #1
    • 5th Aug 18, 9:47 PM
    Company Scheme v SIPP 5th Aug 18 at 9:47 PM
    My 36 year old son has a company pension with Lighthouse Group, his company puts in 2% and he puts in 3% so pretty poor really, it is however his intention to invest further but he's not sure whether to increase his contribution or start his own SIPP.
    He understands that if he increased his contributions he will not be taxed as his contribution comes out of his gross income, plus he will automatically get tax relief on this contribution.
    He also understands that tax relief will be added if he goes down the SIPP route but is unsure how this works as his contributions to the SIPP will be from his already taxed income.
    As a 40% tax payer how does he stand tax wise with this?
Page 1
    • kidmugsy
    • By kidmugsy 5th Aug 18, 10:14 PM
    • 11,389 Posts
    • 7,921 Thanks
    • #2
    • 5th Aug 18, 10:14 PM
    • #2
    • 5th Aug 18, 10:14 PM
    He pays in 80, HMRC send the provider 20, so there's 100 in the pension pot. (Called a "gross contribution" of 100.)

    He informs HMRC and they refund him 20, either directly or by adjusting his tax code.
    Free the dunston one next time too.
    • Dazed and confused
    • By Dazed and confused 5th Aug 18, 10:20 PM
    • 2,808 Posts
    • 1,354 Thanks
    Dazed and confused
    • #3
    • 5th Aug 18, 10:20 PM
    • #3
    • 5th Aug 18, 10:20 PM
    The gross amount of the pension contribution increases the amount of basic rate tax he can pay, which in turn reduces the higher rate tax payable.

    In theory it works out like kidmugsy describes but he doesn't simply get an extra 20%, his tax liability is based on the higher basic rate limit he is entitled to so if he only pays a little higher rate tax compared to the amount of pension contribution then he may not get extra tax relief on all of the pension contribution.
    • atush
    • By atush 5th Aug 18, 10:56 PM
    • 17,007 Posts
    • 10,628 Thanks
    • #4
    • 5th Aug 18, 10:56 PM
    • #4
    • 5th Aug 18, 10:56 PM
    is this Salary sacrifice?
    • Thrugelmir
    • By Thrugelmir 5th Aug 18, 11:01 PM
    • 59,543 Posts
    • 52,847 Thanks
    • #5
    • 5th Aug 18, 11:01 PM
    • #5
    • 5th Aug 18, 11:01 PM
    From next April employee contribution rises to 5% gross (3% employer).
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • NorthernGeezer
    • By NorthernGeezer 6th Aug 18, 8:34 PM
    • 139 Posts
    • 20 Thanks
    • #6
    • 6th Aug 18, 8:34 PM
    • #6
    • 6th Aug 18, 8:34 PM
    As an aside to the original question, and knowing we cant 2nd guess the future but we can look at past performance as a guide though, if he increases his contribution by say 500/month over a period of 20 years, what kind of percentage interest could he hope to obtain against an increase in contribution of 120k
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