Reply to: Umbrellas which offer 'Salary-Sacrifice' pensions

[supersteamer]

So £15,000 of take home pay ended up being £40,000 in your pension.

Magic! Thanks for that - looks like a well over £6k saving compared to personal payment / tax relief. That certainly puts other factors into context.

[eek]

Could anybody point me towards a calculator / method to figure out how much the NI savings of salary sacrifice are worth (compared to tax relief - at source & SATR reclaim?)

Salary sacrifice sounds good but need to offset against disadvantages of: (1) limiting list of umbrellas I can use, (2) limited pension providers for some umbrellas, & (3) additional admin fees.

It would be useful to get some hard figures on how much I gain but the maths is too hard for my little brain

Find a decent umbrella then - some see pension contributions as part of their job rather than a hassle or a profit centre.

But this is a calculation I did for another post here last week.

£154,000 in assignment fees over the year (220 days at £700 a day) with an umbrella fee of £95 a month and a typical 1257L tax code, NI code A so under 66 years old..

£81,865.82 in pocket without any pension contribution (53.16%) = 46.84% lost in tax and umbrella costs.

or
£66,596.50 (43.24%) in pocket with £40,000 (25.97%) paid into your pension = 30.79% lost in tax and umbrella costs.

So £15,000 of take home pay ended up being £40,000 in your pension.

[lucyclarityumbrella]

Thanks for that

Processing this way gives you the NI relief too, rather than just the tax element as it reduced the taxable salary.

[supersteamer]

As a very rough idea, your take home on a standard tax code would drop by around half of the amount you put in the pension via salary sacrifice.
HTHs

Thanks for that - but that doesn't seem much different from just taking it paying it personally and claiming tax relief, e.g. https://www.hl.co.uk/pensions/tax-relief/calculator


For example, putting £40k into that calculator shows effective cost to me of £20k.

[lucyclarityumbrella]

It would be useful to get some hard figures on how much I gain but the maths is too hard for my little brain

As a very rough idea, your take home on a standard tax code would drop by around half of the amount you put in the pension via salary sacrifice.
HTHs

[SimonMac]

Good Afternoon

A bit off topic but related ...

I was a contractor for 15+ years and I'm a long term reader of this forum. However, I retired last September and recently closed down my ltd company. One of my investments is a LV flexible SIPP pension pot which is managed by my IFA. I started drawdown payments this month.

I have been approached by a former client for a month long piece of work, which falls under IR35. Based on research I've signed up with Nasa. The intention was to use salary sacrifice, for my pension allowance (now only £4000) to cut the tax bill for the work. Nasa have been fine, sent me the forms and I've completed. However, my IFA is being difficult and says he has to do due diligence on Nasa in order to accept the payment into my pension. I have forwarded the company details. He has come back and requested that I ask the shareholder of Nasa to provide proof of address and identity (no secure means provided of doing so....). I am reluctant to do this ..

Anyone else had similar issues? & if so how did you address?

The problem lies with your IFA, not Nasa, you pay them for a service they should be doing any diligence not you, or else what are you paying them for?

[supersteamer]

Could anybody point me towards a calculator / method to figure out how much the NI savings of salary sacrifice are worth (compared to tax relief - at source & SATR reclaim?)

Salary sacrifice sounds good but need to offset against disadvantages of: (1) limiting list of umbrellas I can use, (2) limited pension providers for some umbrellas, & (3) additional admin fees.

It would be useful to get some hard figures on how much I gain but the maths is too hard for my little brain

[ccaasjf]

Paystream have been very good managing my SIPP Salary Sacrifice into interactive investor.
I've been with them 14 months now and last tax year they let me over contribute above the normal max to use up previous years pension allowance.
They then let me amend the contribution down for this new tax year to keep within the limits.

PAYE is weekly and SIPP contribution monthly on 19th of following month.
They email me on 13th with the amount to pass on to ii - I complete and upload the ii form for single contribution.
It usually takes about 3 days after 19th to clear into my SIPP, but that seems to be ii lag.

The process has been very consistent and so I'd thoroughly recommend Paystream.

I can only echo the above summary, I have been with Paystream since March this year when I changed contracts, service is excellent, it does take a while to get used to the new pattern and it works well.

Further my pension advisors asked for a plethora of signed letters and information all of which they did.

You need to decide how much to sacrifice on a daily basis, I decided £180/day based upon a working 44 weeks a year which works out around 38k per year, next year I will increase it to make up the 2k not used from the personal allowance.

PayStream - keep up the good work.

[Tynos]

Am I right in thinking they take off the invoice amount first and then apply all the subsequent employer NI and then other taxes + NI?

In which case its a no brainer - I should be asking Paystream to do this into my SIPP too... and just lost a year of a max contribution I guess ...

Yes, a big benefit of salary sacrifice is you also save on employer NI and employee NI, as the SIPP employer pension contribution is deducted first.
Paystream do charge an extra admin charge for this.

[RetiredAlmost]

Good Afternoon

A bit off topic but related ...

I was a contractor for 15+ years and I'm a long term reader of this forum. However, I retired last September and recently closed down my ltd company. One of my investments is a LV flexible SIPP pension pot which is managed by my IFA. I started drawdown payments this month.

I have been approached by a former client for a month long piece of work, which falls under IR35. Based on research I've signed up with Nasa. The intention was to use salary sacrifice, for my pension allowance (now only £4000) to cut the tax bill for the work. Nasa have been fine, sent me the forms and I've completed. However, my IFA is being difficult and says he has to do due diligence on Nasa in order to accept the payment into my pension. I have forwarded the company details. He has come back and requested that I ask the shareholder of Nasa to provide proof of address and identity (no secure means provided of doing so....). I am reluctant to do this ..

Anyone else had similar issues? & if so how did you address?

[youngguy]

In my recent experience, it is not enough to ask "Which Umbrella's offer Salary Sacrifice?".

Many will tell you they do, however it is useful to dig a little deeper. For example Danbro do not pay into your pension, it goes into theirs and is then transferred out to yours. Is this a problem? Maybe not, but it can be quite complex with added delays, paperwork and extra admin.

Many Umbrella's won't do a DD (understandable given the risk to them) but it is worth checking with your pension provider as to how they allow payments as some will only allow DD.

Additionally, different providers have different requirements (some need an email, or a form filled in with each payment) and often it will be the employer - your brolly - who needs to send this info. There is often extra admin for the brolly, which they may not do or may come with at a higher cost.

I'm actually in the process of switching pension providers (due to pension management costs) so am trying to marry up a semi flexible brolly and a semi flexible SIPP platform. They all have their oddities it seems!

[Juninho1976]

Paystream have been very good managing my SIPP Salary Sacrifice into interactive investor.
I've been with them 14 months now and last tax year they let me over contribute above the normal max to use up previous years pension allowance.
They then let me amend the contribution down for this new tax year to keep within the limits.

PAYE is weekly and SIPP contribution monthly on 19th of following month.
They email me on 13th with the amount to pass on to ii - I complete and upload the ii form for single contribution.
It usually takes about 3 days after 19th to clear into my SIPP, but that seems to be ii lag.

The process has been very consistent and so I'd thoroughly recommend Paystream.

I feel a bit thick when I read this - as when I spoke to Paystream I got the impression it was easier for me to just get paid and make my own contribution directly (but there I would just be claiming back my tax and no NI I guess), in fact I almost got advised to do this (as I wanted it to go to ii) by the person I spoke to?


Am I right in thinking they take off the invoice amount first and then apply all the subsequent employer NI and then other taxes + NI?

In which case its a no brainer - I should be asking Paystream to do this into my SIPP too... and just lost a year of a max contribution I guess ...

[Tynos]

Paystream have been very good managing my SIPP Salary Sacrifice into interactive investor.
I've been with them 14 months now and last tax year they let me over contribute above the normal max to use up previous years pension allowance.
They then let me amend the contribution down for this new tax year to keep within the limits.

PAYE is weekly and SIPP contribution monthly on 19th of following month.
They email me on 13th with the amount to pass on to ii - I complete and upload the ii form for single contribution.
It usually takes about 3 days after 19th to clear into my SIPP, but that seems to be ii lag.

The process has been very consistent and so I'd thoroughly recommend Paystream.

[eek]

As a contractor, all contributions come out of the assignment's day rate. The umbrella is really only your employer for payroll purposes.

From a technical point though, the pension amount is deducted from the invoice amount making it an employer contribution.

I've made 2 minor changes there - day rate could imply PAYE rather than assignment rate (assignment rate being HMRCs new preferred term for the rate the agency pays the umbrella) and an umbrella should in theory be doing some employment type activities like Statutory Sick pay and other items.

And we have seen cases where an agency pocketed the Employer NI savings - the biggest reasons to use an umbrella are:-

1) Maximise pension contributions
2) continuity of employment for financial reasons.

[cojak]

The Salary sacrifice into personal pension / SIPP - would this be 100% employer contribution or split into 5% employer contribution and the rest as employee contribution?

As a contractor, all contributions come out of your day rate. The umbrella is only your employer for payroll purposes.

From a technical point though, the pension amount is deducted from the invoice amount making it an employer contribution.