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Where Taxpayers and Advisers Meet

How to calculate parameters on a SP

Ms Terious-One
Joined:Fri Jan 14, 2022 6:59 am
How to calculate parameters on a SP

Postby Ms Terious-One » Fri Jan 14, 2022 7:28 am


Sorry to be so obviously dense but mathematical logic entirely defeats me. If some genius on here could help I’d be hugely grateful. Thanks.

The situation is:

I’m a basic rate / 20% tax payer.
My personal allowance is £12,570
I have an occupational pension of £28,678.20 pa paid monthly
After tax this paid out £2,121.45 pcm on a 1257L tax code

Now, in addition to the occupational pension, I’m getting an sp of £8,537 pa (paid tax free every four weeks).

My question is:
Once I’m back on a regular, rather than emergency, tax code, how much more pension income than at present can I expect after taxes, and what is the formula for calculating it, please? Presumably, once I have the annual amount I can just divide by 12 to get the equivalent of an aggregated (occupational and state pensions) monthly income?

As the PA was applied to my occupational pension until now, but will now come out of the sp first with only the remaining balance being applied to the occupational pension, my understanding is that I’ll get £569.13 pcm extra (£8,537.00 -20% = £6829.60pa), albeit calculated in a different order.

I’m sure I’ve got this entirely wrong but I’m at a loss s as to how to figure it out….. thanks for any help!

Joined:Mon Nov 25, 2019 11:35 pm

Re: How to calculate parameters on a SP

Postby D&C » Sat Jan 15, 2022 12:30 pm

The first tax year you get State Pension can be a little confusing tax wise so I will just explain it for a full tax year.

Your State Pension will always be paid gross by DWP.

Your tax code will include a deduction to reflect this untaxed income so instead of 1257L it would be 403L.

The company paying your occupation pension will operate 403L instead of 1257L and deduct extra tax each month which should in theory mean you have paid sufficient by the end of the tax year.

So you can expect to pay about £142/month extra tax meaning your take home pay (pension) will drop to £1,979/month.

But you will have your State Pension of £656 paid gross every 4 weeks. Equivalent to £711/month.

Have you considered paying voluntary NI to make up the shortfall in your State Pension? It's one of the best investments money can buy. If you have scope you could potentially buy 3 years at a cost of c£2500 but would then get an extra £15.39/week State Pension. For the rest of your life. Allowing for extra tax it would be c£12/week or £640/year.

Possibly worth a conversation with the Future Pension Centre part of DWP to see if this is possible?

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