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Private Pension/SIPP Scheme Contributions Explained

Private pension contributions are an arrangement where an employee agrees to reduce their contractual gross earnings in exchange for increased pension contributions from their employer. This results in a lower salary for the employee, but the sacrificed amount is paid directly into their pension, leading to potential tax and National Insurance savings for both the employee and the employer.

The main advantage of this type of private pension contribution is the potential for higher take-home pay due to lower National Insurance contributions, as well as the increased tax efficiency of pension saving.

So the concept is straightforward – but how much will you actually save?

Because you exchange a portion of your gross pay for pension contributions, you are more tax efficient because instead of your provider adding to your contributions, you directly receive the savings when you make the payment.

In terms of overall savings, here is what you can expect:

-Employment costs: This includes 13.8% Employer NI and 0.5% Apprentice Levy.

-Employee PAYE Tax: 20% for income within the relevant banding and 40% for higher rate earners.

-Employee NI: 12% for income within the relevant banding and 2% for income beyond that.

It’s important to note that not all umbrella companies pass on the full savings from employment costs, as they retain a portion to cover their processing fees. However, at SmartWork, we are proud to pass on all the savings we make to you so that you can maximize the benefits in your pension fund.

If there are any additional fees associated with processing your SIPP (Self-Invested Personal Pension), we will inform you upfront and provide clear details on your payslips.