How to get the most out of pension tax advantages
By Cristian Angeloni, 3 Feb 22
Personal finance experts share 10 tips savers should be aware of
“At some companies, the tax benefits could be even greater as they may allow employees to reduce salary or bonus payments in lieu of increased pension contributions .
“A ‘salary sacrifice’ entails the employee agreeing to a lower gross income and the employer paying the difference into a pension alongside their usual contributions. Both employee and employer will, as a result, pay lower National Insurance contributions (NICs), which are set to rise in April, and this makes pension saving even more tax efficient.
“Sometimes the employer might even pay some or all of their NIC saving into your pension.
‘Moreover, if you are close to the £50,271 earnings threshold where the higher 40% tax rate kicks in, you could dip under it by using salary sacrifice pension contributions so you don’t end up paying excessive marginal tax,” said Higham.
“It sounds too good to turn down, but there are disadvantages to agreeing to a lower salary, such as affordability calculations when it comes to applying for a mortgage.
“Employee benefits such as life cover, and holiday, sickness and maternity pay could also be affected. As could possibly, in the long term, one’s NIC record and state pension entitlement. Employers offering such schemes should provide you with personalised calculations of how it will affect your take-home pay and benefits, and how it will boost their contribution to your pension if at all,’” she added.
Tags: Pension
