Higher rate tax payer and pension.

[ABitConfused123]

My DH earns 72k a year. Sometimes he gets a decent bonus on top of that taking him up to something like 80k a year.

Up until now we have prioritised getting on the property ladder and building our family, our pensions have ticked along quietly in the background, but we haven't paid them much attention and they aren't great. We are in our late 30s.

I am trying to understand if we can afford to put anything over 50k into pensions. I don't know if I'm missing anything really obvious.

Take home on £72k is £3973 per month.
Between his employer and him £10% is going into a pension so £7.2k per year.

If we put everything above £50k into pensions take home would then be £3100 but we would also be eligible for child benefit again which is 256 per 4 weeks. (4 children).

So he would take home £3356 but have £22k plus £3240 (4.5%) that your company contributes so about £25k+ possible bonus going into pension.

Current situation
Take home 3973 pension £7.2k
Tax relief of 40% = £10.08k going to pension.

Possible situation
Take home 3356 pension £25k + bonus
Tax relief of 20% = £30k going to pension.

I know they're quite rough calculations, but does that all sound right? We wouldn't be in the financial position to be able to take the £600 drop in take home pay until next year.

I *think you can put £40k in maximum yearly.

More to the point - are YOU using your pension allowance?

If we were getting near the 40k mark we could drop it further with charitable contributions?

I'm working on my pension, I doubled my contributions last month, but it is tiny with all the maternity leaves. My salary is much smaller, £24k working P/T. Is there something we could do better here?

Are you sure the company will continue to add contributions if you are putting a massive %in? All the pension schemes I've seen have a max employer contribution.

Have a look at lifetime pension allowances. No idea if this would impact you, because I've never been anywhere close to it!

Id seriously consider topping up your pension to start equalising things.

I am trying to get on top of my pension.

His company contribute a flat 4.5%, I don't think that would change, but it is worth checking.

One of the reasons we are looking at putting more into pensions is because neither of ours is looking overly healthy. Although DH is a higher rate tax payer this is a relatively recent thing and his pension bumped along with just minimal contributions up until this point. So his pension is bigger than mine but a very long way off the lifetime pension allowance.

Employee pension contributions often made via salary sacrifice, so tax relief then not also added in so check that out. Also if the contributions aren’t salary sacrificed you only get basic rate tax relief at source (added into pension) any higher rate tax is claimed via your tax return. But yep sounds like a good plan if you can afford it.

I’ve upped my pension contributions to 20% to keep my net adjusted income below a
certain threshold. It certainly makes sense to do it as far as I can tell, as long as you can afford it.

An unexpected bonus for me is that whilst I’ve been on mat leave, my employers have been obliged to maintain the contribution.

pension contributions are usually made net and the pension company claim back basic rate tax so it would be £31250 going into pension for £30k payment. You then claim higher rate relief through tax return. For the purposes of the £40k maximum you include the gross pension contribution and any employers contribution as well. Above £40k you won’t get tax relief although there is carry forward of unused relief from prior years available

Actually It all depends if the company do it as salary sacrifice or not ^

If you are putting £22k into the pension you are reducing your husbands taxable income to £50k, which means all that £22k is going into a pension, whereas if he took that £22k as salary he would lose 40% to tax and 3.25% to NI so he would only take home an additional £12.4k instead of you keeping all the £22k invested in his pension.

your child benefit is worth ~£3,383 a year for 4 children so you are in effect only £9k (not 12.4) in your pocket (to spend now) annually worse off - but if you factor that you have increased your pension by £22k (not incl. the employer contributions) you are more like £13k better off overall - plus that invested money will grow at a better rate in a pension than a standard cash interest savings account.

so yes put it all in and bring his taxable income down to £50k - if you can live on that amount of take home pay

I thought child benefit took into account the total gross pay? I’d double check.
I used to get CB on 18 hrs but not anymore, I just put £25 a week in a separate bank account, may get her driving lessons and a car if we’re lucky. I’ve been thinking of increasing my pension contributions lately, but not sure!
Following.

Yes but if the contribution is made via salary sacrifice, the gross amount goes into the pension and the employee is only taxed on the income after that. So no disadvantage vis a vis it being taxed and grossed up in scheme (actually usually an advantage as no NI due on pension contributions).

No it’s after pension contributions

Also, if he has being paying 7.2k the last 3 years, he can use the allowance he didn't use to overpay this year over 40k.

Basic principle is, if pension is done via salary sacrifice then it's more advantageous to save everything in the pension, because of the NI you're not paying.
Otherwise, pension up to where you're not paying any higher rate tax, then fill up everyone's ISA, then pension again.
And between you, you have two pensions, two ISAs, and the kids can have pensions and ISAs too (but once it's in their name, it's theirs!).

Otherwise, pension up to where you're not paying any higher rate tax, then fill up everyone's ISA, then pension

that’s not correct. Pension still wins as tax rate is still less.

Pension v ISA is a time of access issue

If you can afford to take the hit and contribute all his income over £50k then it is a fabulous deal as he gets tax relief at 40% plus child benefit. I have done that every year from several years and currently contribute the full £40k per year which actually costs me (taking account that I now get child benefits) £21k per year. I'm lucky I can afford to as we have cut our cloth accordingly, and the portion which is in a private pension has done fabulously well in investment return as I opted for a high risk investment strategy given the long term nature of it.