£100k penalty

[fiskalina]

I'm nearly earning £100k and I think pay rise this year will put me above it. I've read a lot about how you're worse off at £100k but I'm unclear if this is still true
if you have no childcare costs.

Is it still worth putting more into pension to keep below £100k?

Two of our three kids earn will in excess of that for years and the third is paid well above the average

To my surprise as when we left work close to ten years ago ie early retirement at just over the age of 50, both of us - we were getting about 33/34 per year

So talking tax a couple of years ago one of the kids was moaning about the tax as their OH's don't work ie full time mums - I was shocked to learn you get no tax allowance at 125k - from memory the allowance is taken in steps from 100k and at 125k you get ZERO

OP

Its complex but two of our kids who earn well in excess of the 100k close to double put away as much as they are allowed into pensions as it is tax effective - but I'm not sure re 100k - re child benefit my kids have children and don't get child benefit I think because they are earning x amount - but from memory they've never had child benefit for years so IMO you get zero child benefit at 100k? Not sure.

Their OH's don't work so 100k plus may look like a lot but if only one person is working - take away taxes, NI, pensions travel costs, its not a lot of money - two people working earning 55k each are much better off tax wise

Of course not. But bonus payments are not pensionable, nor are overtime payments, or out-of-hours allowances.

So they weren't automatically subject to pension. But the popular SIPP providers actually make a selling point of the fact you can open one and pay into it in 15 mins.

He absolutely was able to choose to do that the second the net pay his account.

Yes, always good to pump extra money into pension.

I agree. My DH is a CS and pays into a SIPP as well. He always pays bonus in if he gets one.

I’m surprised more people haven’t mentioned the inconvenience of having to do a tax return too when you hit 100k. You have to register for self assessment, wait for your P60 / P11D, fill it all in correctly or get an accountant to do this for you with a lot of going back and forth (£150ish). Some people might find this easy but others not

Also, people have mentioned the tax savings of putting the money directly into a pension via salary sacrifice - these savings are huge over 100k. Yes, you will get taxed when you draw the pension but probably at a lot lower rate and don’t forget that you will be able to withdraw 25% of your pension tax free at 57 (obviously that might all change in the future though).

If you are set on keeping below 100k I would be conservative and give yourself a buffer of about 5k so bring it down to 95k with pension contributions. You might get an extra bonus / pay rise / get taxed incorrectly for a couple of months and if your take home is a penny over 100k in the tax year you will have to file a tax return (I think the max you can put into your pension in one year is 60k but that’s both yours and your employers contributions added together)

My OT and OOH allowances are pensionable?

even if they weren’t, as @mrsdineen2 points out, absolutely nothing stopping him opening a SIpp and putting bonus/ot/ooh payments in there.

who told him he couldn’t open a SIPP, and why did he not get financial advice before taking the drastic step of changing jobs? Heck we have monthly seminars on how to manage pension contributions from various providers…

And people at the lower end are getting more taken in tax due to the threshold staying at £12250.

Can't feel any sympathy for the over £100k brigade.

Why is it ok to say you have no sympathy for "the over 100k brigade"? What if I said I have no sympathy for the people who need to rely on benefits?

Which isn't true, by the way, I cheerfully pay huge amounts of tax every year and would do even if not compulsory, but comments like these get on my wick. I am not some billionaire living in Monaco, I am a full time working mother paying two lots of childcare and commuting an hour to work every day!

I pay my bonus or part of it into my pension most years - massive saving as my employer also adds by NICs and it’s obviously not taxed either.

I'm just under £50k myself so I don't have horse in this race, but the £100k threshold has been in place since April 2010. £100k in today's money was only £58k back then, so in real terms the amount you can earn beofre being hit by this has almost halved.

In other words, the people targeted by the £100k threshold in a April 2010 were actually earning £172k in today's money. Anybody in between £100k and £172k today could fairly feel aggrieved by that. Above £172k and I agree, it's hard to bring myself to worry about them.

For comparison, you could only £6,475 tax free back in April 2010, which is only £11,200 in today's money. It is of course right and proper that has increased.

Let us say DH was earning £98k gross, basic, before his bonus. He then received a bonus of £9.5k. He cannot say to his former employer, the CS, 'don't give me that bonus, as it will take me over the £100k threshold and I will lose most of it to tax, so please pay it directly to my pension, or let me pay it into a SIPP.' The bonus is not pensionable in this way. He can't not receive it and pay it to a pension, therefore not paying tax on the extra income at the higher rate. So the bonus ended up being worth something around £3k to him.

Of course, he can pay any amount into a SIPP from his taxed income, and then get some tax relief back. Which he did, once he'd got some tax advice. The fact that he was a bit sluggish about getting this advice is perhaps an indicator of how, after 25 years in the CS, he needed a bit of a change and a prod to think more independently, and not assume that something as important as tax and pensions was being taken care of by his employer.

Changing job was not something he did lightly! He will get a very much larger basic salary (out of which he has to find an additional £11k on top of his employer pension package to match the pension deal he got with the CS - hence the SIPP). And he has the chance to earn a bonus of up to £50k each year. Plus he is less restricted on outside work than previously - not so big a deal now, but will be later when he's thinking about switching away from full time work.