Can the Lump Sums if paid, be paid directly into your AVC, thereby reducing tax?

[derricksmyth]

On our last payrise, I calculated the back pay and, having spoken to the Pension people, paid most of it into my AVC on the payment date. This caused no end of problems, my argument was that my regular payments were within the threshold, therefore the extra would not affect this, as it was the back pay. However I had to pay NI on ALL my pension and AVC payments that week, though I didn't pay tax on the pension and AVC payments. So for me it didn't really work.

PSE is worked out on a weekly or monthly basis, depending on how you're paid. If you go over the limit, you lose the benefit of it for that pay period.

Any lump sum sum will take you over the PSE limit, so it's a matter of deciding whether the extra amount going into your AVC is worth the extra NIC's you'll have to pay.

So Robert, if the weekly amount of the lump sum is greater than 1/52 of the £ 40000 annual limit then you would pay higher N I C rate for that week? Would that be right?

I think you have your wires crossed slightly?

The maximum you can pay into pensions is any one tax year and receive tax relief, is equal to what you earn, up to a maximum of £40k. So if you earn £30k you can put £30k into pensions and get tax relief.
It is possible to put in more than you earn if you want to. But you won't get the tax relief, which is the main benefit of paying into a pension.

So the £40,000 you mention, won't really be of interest to most posties!

however, if you pay more into your RM pension/s than the weekly/monthly PSE limit, then you will not benefit from PSE in that week/month, and you will then pay NIC's at a higher rate than if you'd stayed within PSE.

In money terms, if you're within PSE, each £1 gross(the amount on your wage slip) will only cost you 68p net. Because your income tax will be reduced by 20p and your NIC's by 12p.

If you breach the PSE limit, each £1 gross will cost you 80p. Your income tax will still be reduced by 20p but you won't benefit from the reduced NIC's.

Cheers Robert, so would it be up to the pensionable part of the weekly wage? What I want to do is put in an amount to benefit the most from favourable tax and NIcs. I wonder is putting the £500 lump sum in breach of this? Thanks again Robert.

[RobertT]

Cheers Robert, so would it be up to the pensionable part of the weekly wage? What I want to do is put in an amount to benefit the most from favourable tax and NIcs. I wonder is putting the £500 lump sum in breach of this? Thanks again Robert.

I'm sure a few people will be along in due course with their own numbers. But the average full time postie won't be able to pay more than roughly £100 per week into AVC's, and stay within PSE limits.

So any decision to pay in more will mean dropping out of PSE and paying more NIC's that week.

Any other payments you make that benefit from PSE will also need to be factored in, such as the P&M share scheme.

[derricksmyth]

Cheers Robert, so would it be up to the pensionable part of the weekly wage? What I want to do is put in an amount to benefit the most from favourable tax and NIcs. I wonder is putting the £500 lump sum in breach of this? Thanks again Robert.

I'm sure a few people will be along in due course with their own numbers. But the average full time postie won't be able to pay more than roughly £100 per week into AVC's, and stay within PSE limits.

So any decision to pay in more will mean dropping out of PSE and paying more NIC's that week.

Any other payments you make that benefit from PSE will also need to be factored in, such as the P&M share scheme.

Thanks again for all your help Robert!