If you are making pension contributions from your net salary, even after the tax relief you receive you have not made up the deductions in your wages. The key is National Insurance Contributions (NIC)!

Let me give you an example…

You are a higher rate taxpayer and you are making net monthly contributions to your pension of £500.

With basic rate tax relief the gross contribution to your pension is £625. Add to that the higher rate tax relief of £125 that can then be claimed through an extension of your tax code or through self assessment, and you receive total tax relief of £250.

Sounds a good deal right?

Wrong! The gross salary you have used to pay that £500 contribution totals £847.46 when you take account of income tax and NIC at your marginal rate.

Salary Sacrifice could add over 25% extra to your pension!

Now consider that your employer makes a contribution to your pension of £847.46 which puts you in front straightaway.

The employer can offset the pension contribution against corporation tax AND also saves employers NIC of 12.8%. Persuade your employer to add the NIC savings to your pension contribution and this will result in a total contribution to your pension of £955.93.

That’s a surplus of £205.93 going into your pension each month, 27% higher than the personal contribution from your net wage!

If you want to make your pension contributions work harder for you, call for your free consultation on 0844 848 2277.