SIPP & Pension guidance - IM Private Clients
Discussion
I've put this on the salary sacrifice EV thread but thought I might try here given there is a 'pensions' focus:
Hi all,
Our company has finally implemented our scheme (with Octopus), only a year after they said they would and after I've just bought an EV through another company.
I'm currently balancing out taking the depreciation hit on the current car with the 'cheaper' cost of SS leasing, potentially on the same car (iX3).
One thought that struck me, is that is there anyone here on the higher tax bands that has modelled whether you can play around with salary sacrifice pension contributions that marginally increase the overall net deduction from salary, but mean they 'get back' the personal allowance in a way that most of that net deduction goes back into the pension and makes the actual cost of the EV cheaper. Appreciate that few are in this fortunate position and I have tried to google financial models thinking it might have been done, but can't find anything.
For example, playing around with (for just playing around sake numbers), on a £150k salary, if you increase pension contributions from 5% to 30%, and have an Audi at gross lease of £1,100, it brings you under the £100k threshold, meaning although the net deduction goes from £800 to £1,100, approx £700 of this total is an increase in pensions, meaning the cost of the car is 'only' £400 per month.
Anyone done this in a way to quickly determine the best optimisation of pension vs EV scheme that spits out the right % pension based on salary? Or if there is a magic set number irregardless of salary over £150k.
Hi all,
Our company has finally implemented our scheme (with Octopus), only a year after they said they would and after I've just bought an EV through another company.
I'm currently balancing out taking the depreciation hit on the current car with the 'cheaper' cost of SS leasing, potentially on the same car (iX3).
One thought that struck me, is that is there anyone here on the higher tax bands that has modelled whether you can play around with salary sacrifice pension contributions that marginally increase the overall net deduction from salary, but mean they 'get back' the personal allowance in a way that most of that net deduction goes back into the pension and makes the actual cost of the EV cheaper. Appreciate that few are in this fortunate position and I have tried to google financial models thinking it might have been done, but can't find anything.
For example, playing around with (for just playing around sake numbers), on a £150k salary, if you increase pension contributions from 5% to 30%, and have an Audi at gross lease of £1,100, it brings you under the £100k threshold, meaning although the net deduction goes from £800 to £1,100, approx £700 of this total is an increase in pensions, meaning the cost of the car is 'only' £400 per month.
Anyone done this in a way to quickly determine the best optimisation of pension vs EV scheme that spits out the right % pension based on salary? Or if there is a magic set number irregardless of salary over £150k.
xerawh said:
I've put this on the salary sacrifice EV thread but thought I might try here given there is a 'pensions' focus:
Hi all,
Our company has finally implemented our scheme (with Octopus), only a year after they said they would and after I've just bought an EV through another company.
I'm currently balancing out taking the depreciation hit on the current car with the 'cheaper' cost of SS leasing, potentially on the same car (iX3).
One thought that struck me, is that is there anyone here on the higher tax bands that has modelled whether you can play around with salary sacrifice pension contributions that marginally increase the overall net deduction from salary, but mean they 'get back' the personal allowance in a way that most of that net deduction goes back into the pension and makes the actual cost of the EV cheaper. Appreciate that few are in this fortunate position and I have tried to google financial models thinking it might have been done, but can't find anything.
For example, playing around with (for just playing around sake numbers), on a £150k salary, if you increase pension contributions from 5% to 30%, and have an Audi at gross lease of £1,100, it brings you under the £100k threshold, meaning although the net deduction goes from £800 to £1,100, approx £700 of this total is an increase in pensions, meaning the cost of the car is 'only' £400 per month.
Anyone done this in a way to quickly determine the best optimisation of pension vs EV scheme that spits out the right % pension based on salary? Or if there is a magic set number irregardless of salary over £150k.
Hi xerawh, it works - and you might be surprised at just how well it works!Hi all,
Our company has finally implemented our scheme (with Octopus), only a year after they said they would and after I've just bought an EV through another company.
I'm currently balancing out taking the depreciation hit on the current car with the 'cheaper' cost of SS leasing, potentially on the same car (iX3).
One thought that struck me, is that is there anyone here on the higher tax bands that has modelled whether you can play around with salary sacrifice pension contributions that marginally increase the overall net deduction from salary, but mean they 'get back' the personal allowance in a way that most of that net deduction goes back into the pension and makes the actual cost of the EV cheaper. Appreciate that few are in this fortunate position and I have tried to google financial models thinking it might have been done, but can't find anything.
For example, playing around with (for just playing around sake numbers), on a £150k salary, if you increase pension contributions from 5% to 30%, and have an Audi at gross lease of £1,100, it brings you under the £100k threshold, meaning although the net deduction goes from £800 to £1,100, approx £700 of this total is an increase in pensions, meaning the cost of the car is 'only' £400 per month.
Anyone done this in a way to quickly determine the best optimisation of pension vs EV scheme that spits out the right % pension based on salary? Or if there is a magic set number irregardless of salary over £150k.
I found this, no idea if it is good our not!
https://www.drivesmart.co.uk/salary-sacrifice-empl...
Your other option is just to contact nik.burrows@intelligentmoney.com and ask him to work the numbers out for you!
JulianPH said:
xerawh said:
I've put this on the salary sacrifice EV thread but thought I might try here given there is a 'pensions' focus:
Hi all,
Our company has finally implemented our scheme (with Octopus), only a year after they said they would and after I've just bought an EV through another company.
I'm currently balancing out taking the depreciation hit on the current car with the 'cheaper' cost of SS leasing, potentially on the same car (iX3).
One thought that struck me, is that is there anyone here on the higher tax bands that has modelled whether you can play around with salary sacrifice pension contributions that marginally increase the overall net deduction from salary, but mean they 'get back' the personal allowance in a way that most of that net deduction goes back into the pension and makes the actual cost of the EV cheaper. Appreciate that few are in this fortunate position and I have tried to google financial models thinking it might have been done, but can't find anything.
For example, playing around with (for just playing around sake numbers), on a £150k salary, if you increase pension contributions from 5% to 30%, and have an Audi at gross lease of £1,100, it brings you under the £100k threshold, meaning although the net deduction goes from £800 to £1,100, approx £700 of this total is an increase in pensions, meaning the cost of the car is 'only' £400 per month.
Anyone done this in a way to quickly determine the best optimisation of pension vs EV scheme that spits out the right % pension based on salary? Or if there is a magic set number irregardless of salary over £150k.
Hi xerawh, it works - and you might be surprised at just how well it works!Hi all,
Our company has finally implemented our scheme (with Octopus), only a year after they said they would and after I've just bought an EV through another company.
I'm currently balancing out taking the depreciation hit on the current car with the 'cheaper' cost of SS leasing, potentially on the same car (iX3).
One thought that struck me, is that is there anyone here on the higher tax bands that has modelled whether you can play around with salary sacrifice pension contributions that marginally increase the overall net deduction from salary, but mean they 'get back' the personal allowance in a way that most of that net deduction goes back into the pension and makes the actual cost of the EV cheaper. Appreciate that few are in this fortunate position and I have tried to google financial models thinking it might have been done, but can't find anything.
For example, playing around with (for just playing around sake numbers), on a £150k salary, if you increase pension contributions from 5% to 30%, and have an Audi at gross lease of £1,100, it brings you under the £100k threshold, meaning although the net deduction goes from £800 to £1,100, approx £700 of this total is an increase in pensions, meaning the cost of the car is 'only' £400 per month.
Anyone done this in a way to quickly determine the best optimisation of pension vs EV scheme that spits out the right % pension based on salary? Or if there is a magic set number irregardless of salary over £150k.
I found this, no idea if it is good our not!
https://www.drivesmart.co.uk/salary-sacrifice-empl...
Your other option is just to contact nik.burrows@intelligentmoney.com and ask him to work the numbers out for you!
Having thought this through, it seems essentially to be a way to get your salary to £100k or less. The higher the proportion going to pension, the cheaper the car is and less you "lose" as some of the difference goes into the pension.
Conversely the less pension used and higher SS car chosen, the more you pay, but taking net salary down to £100k still makes it cheaper than the quoted figure on the SS scheme.
I hope that makes sense.
xerawh said:
Thanks Julian, the calculator is helpful but think it's aimed at comparing company car vs SS.
Having thought this through, it seems essentially to be a way to get your salary to £100k or less. The higher the proportion going to pension, the cheaper the car is and less you "lose" as some of the difference goes into the pension.
Conversely the less pension used and higher SS car chosen, the more you pay, but taking net salary down to £100k still makes it cheaper than the quoted figure on the SS scheme.
I hope that makes sense.
They key to what you are saying is getting your salary to £100k or less and the best way of doing this is pension contributions, salary sacrifice and of course an EV company car scheme.Having thought this through, it seems essentially to be a way to get your salary to £100k or less. The higher the proportion going to pension, the cheaper the car is and less you "lose" as some of the difference goes into the pension.
Conversely the less pension used and higher SS car chosen, the more you pay, but taking net salary down to £100k still makes it cheaper than the quoted figure on the SS scheme.
I hope that makes sense.
You can combine these anyway you wish to achieve the result. The order you go for depends on whether the priority is the tax saving/pension building or the car. Have a chat with Nik and he can go over the different ways of structuing this and give you the numbers for each.
Armed with this information you can make the choice that best suits you (and obviously review it from time to time).
Cheers!
If I was PAYE earning 110k pa but contributing £60k into pension via salary sacrifice, but I'm also expecting an additional income via sole trader for a one-off £100k...
Assuming I have left over allowances from previous years, can I add £80k of the £100k into my SIPP which HMRC will top up to £100k, and the remaining £20k will cover the tax bill from my self assessment?
Despite my pension contribution, am I right in thinking however that HMRC will still view my taxable income as £150k and I'll lose out on both child benefit and 30 free hours?
Assuming I have left over allowances from previous years, can I add £80k of the £100k into my SIPP which HMRC will top up to £100k, and the remaining £20k will cover the tax bill from my self assessment?
Despite my pension contribution, am I right in thinking however that HMRC will still view my taxable income as £150k and I'll lose out on both child benefit and 30 free hours?
B9 said:
If I was PAYE earning 110k pa but contributing £60k into pension via salary sacrifice, but I'm also expecting an additional income via sole trader for a one-off £100k...
Assuming I have left over allowances from previous years, can I add £80k of the £100k into my SIPP which HMRC will top up to £100k, and the remaining £20k will cover the tax bill from my self assessment?
Despite my pension contribution, am I right in thinking however that HMRC will still view my taxable income as £150k and I'll lose out on both child benefit and 30 free hours?
HI B9,Assuming I have left over allowances from previous years, can I add £80k of the £100k into my SIPP which HMRC will top up to £100k, and the remaining £20k will cover the tax bill from my self assessment?
Despite my pension contribution, am I right in thinking however that HMRC will still view my taxable income as £150k and I'll lose out on both child benefit and 30 free hours?
Julian and Nik are the experts on this and i'm sure will chime in. I am quite sure you will indeed receive additional tax relief plus the HMRC 20% (RAS) with the tax relief being claimed via Self Assessment.
Cheers
Adam
B9 said:
If I was PAYE earning 110k pa but contributing £60k into pension via salary sacrifice, but I'm also expecting an additional income via sole trader for a one-off £100k...
Assuming I have left over allowances from previous years, can I add £80k of the £100k into my SIPP which HMRC will top up to £100k, and the remaining £20k will cover the tax bill from my self assessment?
Despite my pension contribution, am I right in thinking however that HMRC will still view my taxable income as £150k and I'll lose out on both child benefit and 30 free hours?
Hi B9, Any pension contribution you make is removed from your taxable income, so if you have unused allowace and make a contribution with this then this contribution will be removed from your income in the current years for all the purposes you mention.Assuming I have left over allowances from previous years, can I add £80k of the £100k into my SIPP which HMRC will top up to £100k, and the remaining £20k will cover the tax bill from my self assessment?
Despite my pension contribution, am I right in thinking however that HMRC will still view my taxable income as £150k and I'll lose out on both child benefit and 30 free hours?
So HMRC will view your income as being after any pension contributions and the return of higher rate tax on these is not classed as income.
I would go over your proposed figures with Nik to ensure they are spot on, but you can do what you are aiming to do very tax effectively and without losing out on those benefits!
Cheers
Julian
Hello,
I have got about £570 is a Royal Life pension that has been kicking around for some time. I am due to hit 60 this time next year with this pension maturing.
Can I just simply cash the whole lot in now? or would it be a good idea to do so in 2 years time when I retire at 61 and can take it all tax free as will be living off ISA and cash savings until state retirement age. For background I am self employed and paying what I can to my sipp and s's isa's
Cheers
I have got about £570 is a Royal Life pension that has been kicking around for some time. I am due to hit 60 this time next year with this pension maturing.
Can I just simply cash the whole lot in now? or would it be a good idea to do so in 2 years time when I retire at 61 and can take it all tax free as will be living off ISA and cash savings until state retirement age. For background I am self employed and paying what I can to my sipp and s's isa's
Cheers
How do increases in deferred Defined benefit schemes impact on the Annual Allowance?
For example (made up figures) if I have a deferred DB scheme that's currently forecast to pay out £20k per annum, but increases by CPI every year then it will go up by £2k next year.
I assume the PIA would be £32k (16 x £2k) - is that correct?
Does that mean that i can only contribute £8k into a SIPP for that year?
For example (made up figures) if I have a deferred DB scheme that's currently forecast to pay out £20k per annum, but increases by CPI every year then it will go up by £2k next year.
I assume the PIA would be £32k (16 x £2k) - is that correct?
Does that mean that i can only contribute £8k into a SIPP for that year?
Countdown said:
How do increases in deferred Defined benefit schemes impact on the Annual Allowance?
For example (made up figures) if I have a deferred DB scheme that's currently forecast to pay out £20k per annum, but increases by CPI every year then it will go up by £2k next year.
I assume the PIA would be £32k (16 x £2k) - is that correct?
Does that mean that i can only contribute £8k into a SIPP for that year?
With high CPI, this works in your favour and gives you more allowance e.g. assume CPI is 10% for simplicity and that your forecast payment goes from £20k to £23k:For example (made up figures) if I have a deferred DB scheme that's currently forecast to pay out £20k per annum, but increases by CPI every year then it will go up by £2k next year.
I assume the PIA would be £32k (16 x £2k) - is that correct?
Does that mean that i can only contribute £8k into a SIPP for that year?
last year = 16 x £20k x 10% = £352k
new year = 16 x £23k = £368k
PIA = £368k - £352k = £16k
This would only use up £16k of your £60k annual allowance. The above example assumes you were forecast £20k p.a. pension last year and that after another year's service plus your current pay rise then your forecast goes up to £23k p.a.
The key word is deferred
So as long as they don't increase by more than CPI they don't count towards the annual allowance - But only if you're in deferred status for the whole year.
https://techzone.abrdn.com/public/pensions/guide-p...
So as long as they don't increase by more than CPI they don't count towards the annual allowance - But only if you're in deferred status for the whole year.
https://techzone.abrdn.com/public/pensions/guide-p...
Car bon said:
The key word is deferred
So as long as they don't increase by more than CPI they don't count towards the annual allowance - But only if you're in deferred status for the whole year.
https://techzone.abrdn.com/public/pensions/guide-p...
Oops, thank you. I missed that bit.So as long as they don't increase by more than CPI they don't count towards the annual allowance - But only if you're in deferred status for the whole year.
https://techzone.abrdn.com/public/pensions/guide-p...
leef44 said:
Car bon said:
The key word is deferred
So as long as they don't increase by more than CPI they don't count towards the annual allowance - But only if you're in deferred status for the whole year.
https://techzone.abrdn.com/public/pensions/guide-p...
Oops, thank you. I missed that bit.So as long as they don't increase by more than CPI they don't count towards the annual allowance - But only if you're in deferred status for the whole year.
https://techzone.abrdn.com/public/pensions/guide-p...
The thing is I have a current DB pension and I had a promotion last year. Today I received a letter from the Pension Fund administrators telling me that I had exceeded my annual allowance last year and that "I might need to pay tax". I also paid £20k into a SIPP during 2022/23. However if I go back 3 years (19/20, 20/21, and 21/22) I have enough spare personal allowance to cover the "excess" during 2022/23.
Does that make sense? Apologies if it's gibberish
For the deferred DB, I think so, but have a read of the link and the section on DB. My understanding is that from the tax year after you leave / become deferred, you can ignore it for AA purposes.
Your existing DB should be straightforward to figure out whether you owe any tax - will depend on your individual circumstances & what tapering (if any) is applied.
Depending on prior years AA level (incl tapering if applicable) and utilisation, you may or may not have capacity for the 20k.
Your existing DB should be straightforward to figure out whether you owe any tax - will depend on your individual circumstances & what tapering (if any) is applied.
Depending on prior years AA level (incl tapering if applicable) and utilisation, you may or may not have capacity for the 20k.
Thanks carbon - the link is really helpful
Link said:
Deferred members of DB schemes
For tax years 2011/12 onwards, there's no pension input amount for a deferred member of a DB scheme with preserved benefits provided they don't increase by more than CPI or, if greater, in line with the provisions of the scheme rules as at 14 October 2010.
But this only applies where the individual is a deferred member for the whole of a pension input period (or went straight from deferred to pensioner status). In the year they become a deferred member, and there is some active accrual, the pension input amount has to be calculated.
I'm fine with the SIPP contributions, looks like no tax payable.For tax years 2011/12 onwards, there's no pension input amount for a deferred member of a DB scheme with preserved benefits provided they don't increase by more than CPI or, if greater, in line with the provisions of the scheme rules as at 14 October 2010.
But this only applies where the individual is a deferred member for the whole of a pension input period (or went straight from deferred to pensioner status). In the year they become a deferred member, and there is some active accrual, the pension input amount has to be calculated.
I've got a query about transferring a workplace pension into a SIPP. I'm 5 years off retirement
Interest rate on cash in my SIPP is 4.2% so would add around £450 a month. I'm not impressed with the recent returns in the WP pension and I'm reasoning that when rates drop I can buy units in a fund/funds that wouldn't be any worse than the one I'm in now?
I realise that there are probably many options but I like to keep things simple and it seems like an obvious short term step. Any advice?
Interest rate on cash in my SIPP is 4.2% so would add around £450 a month. I'm not impressed with the recent returns in the WP pension and I'm reasoning that when rates drop I can buy units in a fund/funds that wouldn't be any worse than the one I'm in now?
I realise that there are probably many options but I like to keep things simple and it seems like an obvious short term step. Any advice?
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