Reclaiming 'overpaid' NI Contributions

[mayonline]

Hi,
Hopefully I have chosen the right forum for this question

I am currently part of my employers pension scheme. They give me 5% of my salary and I top this up by 16% voluntary contribution, meaning 21% goes into my pension pot. As this is done via salary sacrifice, there is no need to claim back the tax and I also get a reduction in NI too.

Anyway, I want to stop these voluntary contributions, take the cash as taxed salary and then pay it into my Interactive Investor SIPP.

My understanding is that as these SIPP payments are not longer classed as salary sacrifice, I will not then get the NI reduction?

Is this correct or is there perhaps a way to claim back 'overpaid' NI via a tax return or some other way?
My assumption is that I will loose the NI incentive, but just checking?

I hope this makes sense.......TIA.........Paul

Moderator Message:
I think you'll get a better response on the Pensions board so I've moved it there for you (with a link left to the original) (chas49)

[Laughton]

Someone far more knowledgeable than me will be along shortly but, so long as your employer is amenable, I can't see a reason why your employer can't pay the same amount into your SIPP as they currently pay into your workplace pension.

As it's a pension contribution payments would be gross (no tax deducted) and I would have thought no NI deducted either.

That's definitely how a lifetime of contributions to my SSAS has worked - why should a SIPP be different?

[genou]

Does your current scheme allow partial transfers? If your employer doesn't want to contribute to a SIPP, you could leave contributions going into the employer sponsored scheme and do periodic partial transfers.

[vagrantbrain]

Pension contributions only attract tax relief not NI relief so there's no overpayment to reclaim if you pay into a SIPP instead. The reduction in NI on your salary sacrifice is only due to your taxable income reducing, rather than the fact the sacrificed cash is going into a pension.

[mayonline]

Does your current scheme allow partial transfers? If your employer doesn't want to contribute to a SIPP, you could leave contributions going into the employer sponsored scheme and do periodic partial transfers.

I think this is the answer - cheers

[chris]

If your contributions are part of a salary sacrifice, then the contribution is deducted from your salary before tax and NI. Therefore your NI savings will be on your contribution (rather than the company's).

For ease of calculation, lets assume tax at 20% and Ees NI at 12% and that you contribute 10% and you earn 2000 per month.
No salary sacrifice = 2000 - 400 tax - 240 NI - 160 Pension = £1200 net salary + 160 + 40 tax relief = £200 into pension
Salary Sacrifice = 1800 - 360 tax - 216 NI = £1224 net salary + £200 into pension.
There is a lower limit below which you don't pay NI and an upper limit, above which you pay at and you have your personal allowances for tax but assuming that you are within the 20% band and in the 12% band for NI, the difference in net salary will be £24 in this example.

I would be very doubtful if:
1 Your employer would contribute anything, if you stopped your contributions or reduced them below the 5% specified in auto enrolment limits.
2 Your employer would contribute into your personal SIPP. Pensions are a PITA to administer if there is more than 1 pension company involved and your employer would naturally be unwilling to increase the administrative burden by agreeing to transfer your contribution elsewhere.

I certainly wouldn't. However, if you are on very good terms with your MD, you may get him to force the FD to do it (I say force, because I would certainly resist it even if the request came from him)!

So the advice to do transfers from the pension fund to your SIPP is probably your best bet. You are still better off getting your company's contribution and the NI relief on the amount you are paying in.