Additional Pension Contributions
Discussion
A friend suggested making some additional pension contributions rather than paying 40% tax rate.
Threshold this year is £46350. I had assumed keeping pensionable pay under this figure by asking my employer to make a lump sum in March would achieve this.
Just reading this old article is suggestions it is not quite that simple as that as I need to factor in a 0.8 calculation? I can only think this relates to the 20% rate?
Any advice on what I need to keep my pensionable pay figure to, to be most efficient?
Thanks.
Threshold this year is £46350. I had assumed keeping pensionable pay under this figure by asking my employer to make a lump sum in March would achieve this.
Just reading this old article is suggestions it is not quite that simple as that as I need to factor in a 0.8 calculation? I can only think this relates to the 20% rate?
Any advice on what I need to keep my pensionable pay figure to, to be most efficient?
Thanks.
You need to calculate the amount of higher rate earnings involved and ideally ask your employer to make a gross contribution for this amount on your behalf.
The should be happy to do this for the NI saving.
If not, make a personal net contribution of 80% of this amount (this is you 0.8 multiple) and your pension provider will automatically reclaim the 20% basic rate tax within your pension. You then reclaim the additional 20% higher rate back on your tax return.
So if the figure was £10,000 (to use a round number) you would make a net contribution of £8,000 with your pension company grossing this up to £10,000 and then you reclaiming the other £2,000 back on your tax return.
The should be happy to do this for the NI saving.
If not, make a personal net contribution of 80% of this amount (this is you 0.8 multiple) and your pension provider will automatically reclaim the 20% basic rate tax within your pension. You then reclaim the additional 20% higher rate back on your tax return.
So if the figure was £10,000 (to use a round number) you would make a net contribution of £8,000 with your pension company grossing this up to £10,000 and then you reclaiming the other £2,000 back on your tax return.
Will be asking my employer to arrange it. My usual smaller contributions are shown as BRASS in the deductions section on my payslip. My taxable pay is always less the BRASS contribution from my gross pay.
For simplicity, if my taxable earnings for the year are £50K should I be asking them to make an additional contribution of £3650.
As I understand it, if I took the £3650 in wages I would see net £2190.
For simplicity, if my taxable earnings for the year are £50K should I be asking them to make an additional contribution of £3650.
As I understand it, if I took the £3650 in wages I would see net £2190.
Rick101 said:
Will be asking my employer to arrange it. My usual smaller contributions are shown as BRASS in the deductions section on my payslip. My taxable pay is always less the BRASS contribution from my gross pay.
For simplicity, if my taxable earnings for the year are £50K should I be asking them to make an additional contribution of £3650.
As I understand it, if I took the £3650 in wages I would see net £2190.
Factoring out NI contributions this is correct. It is therefore more efficient for both you and your employer for a gross contribution to be made.For simplicity, if my taxable earnings for the year are £50K should I be asking them to make an additional contribution of £3650.
As I understand it, if I took the £3650 in wages I would see net £2190.
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