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  • FIRST POST
    • Jaguar Skills
    • By Jaguar Skills 7th Aug 18, 11:14 AM
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    Jaguar Skills
    Private Pension or Workplace via Salary Sacrifice?
    • #1
    • 7th Aug 18, 11:14 AM
    Private Pension or Workplace via Salary Sacrifice? 7th Aug 18 at 11:14 AM
    Hi all,

    Just a brief question. I currently pay in a lump sum into a private pension each month and then deposit larger sums during my bonus periods.

    In November 2017 my company confirmed that salary sacrifice would be available with the NI savings passed on to the employee. I opted into this as soon as I could but didn't increase any contributions.

    The notes from the salary sacrifice email are here:

    Please note that if you would like to pay over any above the standard 2% into your pension you can. There are 2 ways this can be done. You can increase your 2% contribution to a specified amount, and or/you can make lump sum contributions. This can be done with or without opting into salary sacrifice, although salary sacrifice is the more tax efficient way of paying into the pension. Please note that to simplify the administration process of salary sacrifice, it will only be possible to pay in lump sums twice per year (through March and September pay runs).

    My question relates to whether it would be more beneficial to increase my workplace contributions or my keep my personal ones as they are with the lump sums in March/September going into workplace or personal.

    Does it also make a difference what the fees are? My PP is a low cost platform but my workplace one is St James Place which I know is fairly high cost.

    If there is any other details that are needed, to give me an informed decision, please shout. Thanks in advance.
Page 2
    • Triumph13
    • By Triumph13 7th Aug 18, 3:15 PM
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    Triumph13
    The amount of flexibility offered by employers varies a lot. Mine lets me change my pension contributions every month. Lisyloo's doesn't. Yours allows 2 lump sums and may or may not allow other changes.
    If you do have the flexibility then easiest to explain with an example. Lets say you earn £6k per month and, for the sake of keeping the numbers simple, lets assume the cutoff point for higher rate tax is £4k per month. If you were to sacrifice £1k every month then all of that would be from higher rate band so 40% tax and 2% NI. If instead you sacrifice the minimum to keep your employer's contributions in some months then you could instead contribute £4.6k some other months to get you down to minimum wage. In those months the first £2k is still getting you 42% relief, but the next £2.6k gets 52% relief as you are avoiding paying 12% NI and 40% tax.
    If your employer hands over their savings too then add another 13.8% on top.
    The more your earn, the bigger the slice above the cut-off you have to contribute before you get at that nice band between minimum wage and higher rate tax threshold in your major contribution month admittedly, but it is still the most efficient way to go - if your employer allows it.
    Last edited by Triumph13; 07-08-2018 at 3:19 PM.
    • Jaguar Skills
    • By Jaguar Skills 7th Aug 18, 3:51 PM
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    Jaguar Skills
    Would it be more helpful if I disclosed my salary to work out if it is possible?
    • MallyGirl
    • By MallyGirl 7th Aug 18, 3:58 PM
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    MallyGirl
    I do the big lump sum contributions a couple of times a year as part of my 'keep below 40% tax' strategy. I sacrifice down to min wage (approx) so pay little/no NI that pay period. I am lucky that my employer lets me change the pension contribution online as often as I want. Sadly they don't pass on the employer NI but you can't have everything
    • Jaguar Skills
    • By Jaguar Skills 7th Aug 18, 4:07 PM
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    Jaguar Skills
    I do the big lump sum contributions a couple of times a year as part of my 'keep below 40% tax' strategy. I sacrifice down to min wage (approx) so pay little/no NI that pay period. I am lucky that my employer lets me change the pension contribution online as often as I want. Sadly they don't pass on the employer NI but you can't have everything
    Originally posted by MallyGirl
    The thing is I dont think I would be able to do this.

    The lump sums would go over the pension deposit threshold i.e. there would be too much going in to make it tax benefical (if I understand it correctly). Can't you only put in up to £40,000 per annum?
    • Triumph13
    • By Triumph13 7th Aug 18, 4:10 PM
    • 1,266 Posts
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    Triumph13
    Would it be more helpful if I disclosed my salary to work out if it is possible?
    Originally posted by Jaguar Skills
    It doesn't make much difference, other than in terms of how many times you can do the sacrifice to minimum wage route within your £40k AA.
    You probably need to have a chat with your payroll dept to check a) how many times a year they will let you change your pension contribution rate; and b) to confirm that you still get the salary sacrifice benefits on these 'lump sum' contributions as long as you are still above minimum wage.
    If you can change contributions twice per year then that would be enough to give you the maximum benefit - just so long as you can cope cashflow-wise with being on minimum wage for a few months before you go back up again!
    • lisyloo
    • By lisyloo 7th Aug 18, 4:11 PM
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    lisyloo
    The lump sums would go over the pension deposit threshold
    You could adjust the monthly one downwards to account for this.
    if you are talking about the £40K then I believe that's annual.
    So put the lump sums up but monthly ones down.


    Are you married and does your partner pay higher rate tax too?


    I salary sacrifice close to min wage, then fill up my basic rate tax band with dividends from my partners limited company where tax is 7.5%.
    I am also allowed to gift him the money back tax free - bonkers.


    If you are married and your spouse pays basic rate or no tax there might be a way to take advantage of that.
    Last edited by lisyloo; 07-08-2018 at 4:13 PM.
    • Triumph13
    • By Triumph13 7th Aug 18, 4:15 PM
    • 1,266 Posts
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    Triumph13
    The thing is I dont think I would be able to do this.

    The lump sums would go over the pension deposit threshold i.e. there would be too much going in to make it tax benefical (if I understand it correctly). Can't you only put in up to £40,000 per annum?
    Originally posted by Jaguar Skills
    The whole trick is to put the £40k in in a lumpy way, not a smooth one. If employer contributions were £10k you could just contribute £2.5k per month for your £30k, but it is more efficient to do the minimum some months and the maximum allowed others - these are the lump sums MallyGirl is talking about.
    • michaels
    • By michaels 7th Aug 18, 4:26 PM
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    michaels
    AFAIK there is no upper limit on employers NI of 13.8% so if the employer is willing to share some or all of this then the sal sac route must win by miles regardless of fees and the lumpy payments is also second and order. I negotiated 10% with my employer. Looks like you may also need to worry about 40k annual allowance although there is up to 3 years carry forward.

    It is possible to SAP sac to nmw and reduce hours to have a very low taxable income and benefit from all sorts of govt top ups such as tax credits using a low one year high the next approach.....
    Cool heads and compromise
    • Jaguar Skills
    • By Jaguar Skills 7th Aug 18, 8:19 PM
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    Jaguar Skills
    You could adjust the monthly one downwards to account for this.
    if you are talking about the £40K then I believe that's annual.
    So put the lump sums up but monthly ones down.


    Are you married and does your partner pay higher rate tax too?


    I salary sacrifice close to min wage, then fill up my basic rate tax band with dividends from my partners limited company where tax is 7.5%.
    I am also allowed to gift him the money back tax free - bonkers.


    If you are married and your spouse pays basic rate or no tax there might be a way to take advantage of that.
    Originally posted by lisyloo
    Iím not married (yet) but my gf doesnít work as she looks after our little one. I donít think she will go back to work to be honest. Iím still not sure given how much I would need to sal sacrifice that I could get to near min wage.

    But as Iíve said before I am a bit lost.
    • Triumph13
    • By Triumph13 7th Aug 18, 10:41 PM
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    Triumph13
    Iím not married (yet) but my gf doesnít work as she looks after our little one. I donít think she will go back to work to be honest. Iím still not sure given how much I would need to sal sacrifice that I could get to near min wage.

    But as Iíve said before I am a bit lost.
    Originally posted by Jaguar Skills
    The key point I suspect you haven't grasped yet is that most of us are only talking about sacrificing to minimum wage for a small number of months. We are not talking about changing your overall taxable income for the year - you still earn the same amount and you still make the same amount of pension contributions. That means most months your income is higher than if you had flat contributions (and you pay 2% NI on that 'extra' monthly earnings), but some months your earnings are much lower than normal (and you avoid paying 12% NI on part of the 'missing' monthly wage).
    • Jaguar Skills
    • By Jaguar Skills 8th Aug 18, 7:41 AM
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    Jaguar Skills
    Thanks Triumph - it is all quite confusing! I don't think my director would understand it either and because we don't have a payroll department as we are a small company there is noone to ask regarding it. I guess I could get my director to ask the accountants (who are external)? If I were to do that is there a set of simple questions I could ask.

    If the above is possible, how much am I likely to save as it seems like quite a faff if there is not much to be saved.

    Coming back to my original point, does anyone have any opinions on the SS vs PP contributions, as that seems a more simple calculation than decreasing wages for certain months to lower NI contributions???

    I really do appreciate the help so thanks everyone for your comments, just want to try and make some progress on this.
    • Triumph13
    • By Triumph13 8th Aug 18, 9:45 AM
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    Triumph13
    With a small company they probably won't be geared up to cope with you changing pension contributions all the time so that's probably a non-starter for you. The NI savings aren't huge compared to the size of your income. The sweet spot between minimum wage and the HRT band that people are exploiting is only about £2,500 wide so saving 10% NI on that saves you £250 for each month you manage to do it.
    Getting back to your original question, it all comes down to whether your firm is giving you THEIR savings on NI as well as your own savings. If not then all Sal Sac does for you is save 2% NI which may not be enough to offset charges and/or limited fund choices. If they give you their NI savings too then that would almost certainly outweigh all other consideration. The question to ask is 'If I sacrifice £100 of salary, how much gets paid into my pension?' If they say £100 then you are only getting your own NI savings and they are trousering the 13.8% themselves.
    • Jaguar Skills
    • By Jaguar Skills 8th Aug 18, 10:02 AM
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    Jaguar Skills
    Thanks triumph. This was the full email we got when it was introduced. I think if I read it correctly that this means that we get the employers contribution as well then?

    Salary Sacrifice

    Further to discussions in our recent team meeting, I confirm that salary sacrifice will be available from 1st November 2017. The attached document explains how this works. I confirm that the figures will be re-worked in such a way to pass on the Employer!!!8217;s National Insurance saving to the employee. Please let me know if you would like to opt into this. From what I understand, it doesn!!!8217;t cost the employee or employer anything, but results in more money going into your pension.

    Please note that if you would like to pay over any above the standard 2% into your pension you can. There are 2 ways this can be done. You can increase your 2% contribution to a specified amount, and or/you can make lump sum contributions. This can be done with or without opting into salary sacrifice, although salary sacrifice is the more tax efficient way of paying into the pension. Please note that to simplify the administration process of salary sacrifice, it will only be possible to pay in lump sums twice per year (through March and September pay runs).
    • Jaguar Skills
    • By Jaguar Skills 8th Aug 18, 10:05 AM
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    Jaguar Skills


    This was an example in the St James Place thing we got.
    • bowlhead99
    • By bowlhead99 8th Aug 18, 10:44 AM
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    bowlhead99
    To summarise :
    - workplace contribution better than personal pension contribution because as well as the tax relief which you could get anyway on personal contributions, you get employees NI saving of 2% and employer's NI saving of 13.8%. Both of those things you'll get if you salary sacrifice, as per your descriptions above.


    - workplace sal sac contributions done at a low level with one or two lump sums, are better than doing monthly larger amounts, because instead of employees NI saving being all at 2%, there's a bit of saving at 12%, and that extra 10% saved on two to three thousand quid can be worth £250 or so, once or twice a year.


    So basically you have an opportunity in March and September to make a big sal sac contribution and more 'normal' ones the rest of the time (which they won't change month to month for you, because they only want to allow two 'big' months to make the admin easier for them, fair enough).

    So say you earn £125k a year, about £10400 a month. You can set up your sal sac pension to do the bare minimum sacrifice of 2% (£2500 a year, about £200 a month). So it changes your official gross salary to £10200 ish per month.

    When you get to September there is a chance to do a lump sum. So you ask to do a special one off contribution of £8,900. As a result, your gross pay for that month drops from £10,200 (usual level after the 2% sal sac) to £1,300. If you work 37.5 hours a week at minimum wage of 7.83 an hour, 52 weeks a year divided by 12 months, your pay at minimum wage for a month would be about £1270, and you are getting gross pay of £1300, so no problems with being paid less than minimum wage.

    So, for September due to your 'sacrifice' you earn a really low amount, and as a consequence of that paltry salary you don't pay much employee's national insurance for that month. If you had earned more than £1300 you would be paying employee's 12% national insurance on everything up to £3863 and 2% on the amount above that up to whatever you usually earn.



    So your *normal* salary sacrifice pension contributions, which always take place in the space above £3863 a month, are only saving you 2% of NI, while part of this special lump sum salary sacrifice pension contribution in the gap between the £1300 declared gross pay for the month and the £3863 upper earnings threshold, is more lucrative, at 12% NI. So there's an extra 10% to be made on part of your contribution.

    10% of the amount saved within the high rate NI band (ie 3863 less 1300) is about £256.

    By taking the salary sacrifice like that, you are getting the special ability to save £256 of employees national insurance in that special lucrative band during September. If instead you decided to spread out the 'lump sum' sacrifice of £8900 across all the other months at about 740 a month, all the NI saving would be at 2%.

    Obviously how much you have to sacrifice in a March or September to get down to ~£1300 gross for that month (salary staying above minimum wage) will depend on whether you usually earn £6k a month or £10k a month or 12k a month etc.
    Last edited by bowlhead99; 08-08-2018 at 10:49 AM.
    • Jaguar Skills
    • By Jaguar Skills 8th Aug 18, 11:04 AM
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    Jaguar Skills
    Thanks Bowlhead, that is really useful and thanks for taking the time to reply. Because the bonus fluctuates, I don't always know and therefore would need to work it out off your maths above (if I can)

    If I made contributions which went over £40k what would the implications of that be?

    I can certainly start doing those lump sum amounts into my workplace rather than personal pension. For instance last year I made 2x£10,000 contributions then a further one of about the same to make my contributions to just under the AA. The rest was made up of my standard £600 pcm into PP = £7,200.

    I guess if I switch those contributions from PP to WP to say £12,500 per bonus period under salary sacrifice that would work?

    Sorry if I have misunderstood.
    • Triumph13
    • By Triumph13 8th Aug 18, 11:29 AM
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    Triumph13
    Unless it coincides with the payment of a bonus or some such, you couldn't do a £12,500 lump sum as that would take you below minimum wage for that month (If you were earning enough to do that and still be getting minimum wage then you would be well into the Annual Allowance taper)
    The amount you can sacrifice is always limited by the requirement to still be being paid minimum wage.
    • Jaguar Skills
    • By Jaguar Skills 8th Aug 18, 11:34 AM
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    Jaguar Skills
    Unless it coincides with the payment of a bonus or some such, you couldn't do a £12,500 lump sum as that would take you below minimum wage for that month (If you were earning enough to do that and still be getting minimum wage then you would be well into the Annual Allowance taper)
    The amount you can sacrifice is always limited by the requirement to still be being paid minimum wage.
    Originally posted by Triumph13
    But I will still get my normal wages so it wouldn't take me under min wage would it?
    • atush
    • By atush 8th Aug 18, 11:41 AM
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    atush
    Iím not married (yet) but my gf doesnít work as she looks after our little one. I donít think she will go back to work to be honest. Iím still not sure given how much I would need to sal sacrifice that I could get to near min wage.

    But as Iíve said before I am a bit lost.
    Originally posted by Jaguar Skills

    Your GF is in a very precarious position.

    If she reads this, she should go back to work and get her own pension and income, if you have no plans to marry the mother of your child.
    • badmemory
    • By badmemory 8th Aug 18, 1:28 PM
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    badmemory
    Your GF is in a very precarious position.
    Originally posted by atush
    Agreed - is she even getting NI credits towards her state pension (via child benefit)?



    Whilst it may not be as financially beneficial she/you should be paying the max possible into a pension for her.
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