Salary Sacrifice Pension Contributions

Salary sacrifice pension schemes can be a tax-efficient way to save for your retirement. However, to ensure you make the most of those benefits, it’s important to understand all the rules, tax and other ones, relating to both yours and your employers’ pension contributions.

While there’s nothing to stop you from sacrificing as much of your income as possible, provided you still receive an income above the national minimum wage, there are rules you can follow to ensure that you gain the most from this benefit for your pension savings.

Speaking with a pensions expert can be a great way to find the correct information on important matters like your salary sacrifice pension contributions. But it’s also useful to have some idea of what the rules are and how they could affect you.

That’s why we’ve written this article.

In it we’ll discuss:

Get started today by calling us on 0808 189 0463 or make an enquiry. The experts we work with can offer you free, tailored advice about salary sacrifice pension contributions that’s completely impartial.

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Are there any limits on salary sacrifice pension contributions?

When it comes to saving for your pension, it’s important to do it in a way that will make sure you get the best balance between saving for your retirement and managing your income. However, if you’re worried that you don’t have enough pension savings, or you’ve started saving for retirement late in your working life, you may consider making higher contributions from your earnings via your company’s salary sacrifice pension scheme.

Strictly speaking, the only limit on your contributions through a salary sacrifice pension scheme is that your income remains above the national minimum wage. However, there is a tax-related limit on total pension contributions that you should be aware of.

As of 2019, there is a £40,000 annual limit on the total amount that can be contributed to all your pension savings for basic-rate taxpayers. However, if you’re a higher earner, then a taper is used to calculate your limit, which could fall to as low as £10,000 for tax penalties to apply.

Bear in mind that pension contribution limit includes employer and employee contributions across all of your pension savings, for any personal pension or salary sacrifice scheme. If you have more than one pension, the limit applies to them all. If over £40,000 is paid into all of your pensions in a year, then the amount above the £40,000 will be taxable and the benefits to you and your pension will be lower if you go above that limit.

The limit on pensions including salary sacrifice contributions can and does change, so it’s important to make sure any contributions you make are within them. That’s where an experienced pension advisor can help. They can answer all your questions, review any existing pensions you have while also ensuring your financial planning, including your pension savings, are as tax efficient as possible.

Make an enquiry to receive free, impartial advice from one of the experts we work with.


Is there a maximum or minimum employee salary sacrifice pension contribution?

As discussed in the above section, while there isn’t a maximum limit on employee salary sacrifice scheme contributions, there is an overall pension limit of £40,000 for basic-rate taxpayers for tax-efficient purposes, which can affect how much you pay via a salary sacrifice pension.

With regards to a minimum limit, there isn’t a broad-based one, although each scheme may have a lower limit to keep it in-line with the rules of the pension fund management company that runs the company pension scheme.

Another rule to be aware of is that employee contributions to a salary sacrifice pension scheme can’t bring their salary to below the national minimum wage.


Is there a maximum or minimum contribution employers can make to a salary sacrifice pension scheme?

The same rules that apply to maximum and minimum salary sacrifice pension contributions also apply to employer pension payments. They are:

  • The total limits for tax benefits on payments into a salary sacrifice pension scheme include an employees total pension pot and is currently capped at £40,000 per year before additional taxes are incurred, for basic rate taxpayers.
  • Any employer contributions to a salary sacrifice pension scheme must not reduce an employees’ income to below the national minimum wage.
  • Any minimum contribution may relate to the pension fund management’s rules.

What are the tax implications if I exceed the salary sacrifice pension contributions limits?

Where an employees’ total pension contributions exceed £40,000 a year, which may include salary sacrifice, then there will be additional tax payment implications. At what rate that amount over £40,000 in pension contributions, including under salary sacrifice schemes, will be charged depends on a number of different details.

One of them is at what rate you already pay income tax, another is the type of pension scheme or schemes you pay into and yet another is by how much your contributions exceed the £40,000 tax relief limit.

This can become a complex situation and speaking with an experienced pension advisor, like those we work with. They can ensure you get the most out of your pension planning and salary sacrifice pension scheme opportunities with regards to your current income and future pension.


Can you get a refund of your salary sacrifice pension contributions?

A refund of pension contributions from a company scheme are usually available if an employee leaves service within a predetermined qualifying period (typically within the first two years).

However, for a salary sacrifice pension, the contributions are from the employer rather than the employee therefore there is generally no refund available and any funds will remain invested within the pension scheme.


Speak with a salary sacrifice pension scheme expert

If you’re considering joining your employer’s salary sacrifice pension scheme or wish to increase your contributions to one you’re already part of, but are unsure of limits and how to make the most of pension tax relief rules, speak with an advisor.

Call us on 0808 189 0463 or fill in our online enquiry form and we’ll put you in touch with someone shortly.

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

Author:
Tony has worked in a vastly diverse array of areas in the pensions industry for over 2 decades. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events. Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been "Hope for the best, but PLAN for the worst", and believes that the biggest impact that an adviser can have on a client's life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they WANT their retirement to be.

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