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Find out more'I'm in a salary sacrifice scheme: what does it mean for my pension?'
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I’m a member of a salary sacrifice pension scheme. How much am I allowed to pay into my pension this tax year?
A Which? Money member
'Look out for contribution limits'
Mike Croxford, Which? money expert, says…
For readers who may be unaware, a salary sacrifice pension scheme is where the employer reduces your pre-tax gross salary and instead makes an equivalent employer contribution to your pension. This reduces the National Insurance you and your employer pay.
There are several – and sometimes conflicting – rules surrounding pension contribution limits.
The first limit to note is that you can usually contribute no more than £60,000 to your pension within a tax year without incurring a tax charge. This amount can be made up of contributions from you as well as from your employer. Salary sacrifice additions to your pension count as employer contributions.
However, you as an individual must not contribute more than your gross pay in any one year. And here salary sacrifice can prove an obstacle.
You as an individual must not contribute more than your gross pay in any one year
Let’s say your usual salary is £30,000 and your employer reduces it to £25,000 and instead makes a £5,000 contribution to your pension. This would mean your gross salary is now £25,000, so that would be the limit for your tax-free contributions for that tax year, rather than £30,000.
If you’re under 40 and would like to save more than the pensions annual allowance, you can put up to £4,000 a year in a Lifetime Isa.
Unlike pension contributions you won’t get tax relief, but you’ll benefit from a government bonus of 25% each year. As with pensions, your money will be able to grow free of tax.
You can only access money held in a Lifetime Isa when you turn 60, or if you’re using it to buy your first home costing up to £450,000. Otherwise, you’ll face a 25% penalty charge.
- Find out more: Salary sacrifice
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