Theoretically, could you use salary sac and pension withdrawal to get around paying back student loan?

[christianr_]

I work in Scotland with English BA and MA loans outstanding, and earnings above ~43.5k pay 42% income, 12% NI, 9% Plan 2, and 6% MA loans. That's a nice 69%, deduction before any kind of salary sac into pension. From what I read, pension withdrawal penalty is around 55%. I'm not optimistic about paying off my student loans before they expire, unless I pass six figs of income, which isn't likely (the rates are disgusting). Therefore, would it make sense to indefinitely sacrifice everything into a pension above the ~43.5k number, and use it as kind of an 'emergency' pot that has a ~14% reduced deduction burden? Also, though I don't have kids or earn this much, this could theoretically let me keep access to child tax benefit if I go over 50k p.a., right, and even to tax allowance between 100k and 124k? Thank you for your time, consideration, and opinions.

 

[treyarch1]

@christianr_ You can't use a pension as an emergency fund.

Taking money out of a pension early technically has a 55% penalty to you, but the reality is it's pretty much impossible. There's also a charge payable by whoever let's you access the money, and all of that added together means that it's such a bad idea that no reputable company will let you do it. That means you're left with dodgy companies, who will at best take yet another cut as profit for themselves, and at worst turn out to be scammers who steal the lot.

 

[rc1138delta38]

@treyarch1 55% penalty = your withdrawal of £10,000 for an emergency boiler replacement will cost you £18,180.

It's better to get a credit card or really any loan than to pay a 55% penalty. I can't think of any emergency that is worth that.

 

[servingnovice]

@rc1138delta38 Would love to see that breakdown. Who's charging 10 grand to replace a boiler, even in an emergency?

 

[rc1138delta38]

@servingnovice Lol well I was including some water damage in that, I don't know! What emergency comes on too quickly to apply for a loan? Getting bailed out pretrial?

 

[servingnovice]

@rc1138delta38 Maybe a tree cleaning out your roof . Car or house

 

[perseverancethroughfaith]

@christianr_ Slight hitch, you can't withdraw from your pension till 55-57 (or older if rules change again) So no use as an emergency pot before then.

Any company allowing you to do this will be dodgy and probably take a big fee on top of the 55% to cover their own fine, or worse scam you out of all of it.

The practice of salary sacrifice to decrease NIC and student loan repayment is fine though if you're working towards a retirement goal that needs those contributions.

 

[kelbren]

@christianr_ £50k child allowance limit increasing to £60k and tapering off at £80k from April. Rather than the £60-£60k band now.

As for using pension to escape the loans portion. While technically possible, it’s more financially punitive than the headline figures suggest.

 

[sashieng]

@christianr_ Your NIC figure is off, it is 10% going down to 8% from April.

 

[brownrichard]

@christianr_ Student loan is based on income that attracts national insurance. If you can salary sacrifice into your pension then it would reduce student loan repayments.

 

[lightotp]

@christianr_ Using your pension as an emergency fund is a terrible idea but unless you're on a huge salary you should definitely sacrifice anything over the higher rate tax threshold for Scotland.

 

[rc1138delta38]

@wisper They said 69% on any additional marginal income. Not that they're already paying it on their current income.

 

[bobbiebharper]

@christianr_

I work in Scotland with English BA and MA loans outstanding, and earnings above ~43.5k pay 42% income, 12% NI, 9% Plan 2, and 6% MA loans. That's a nice 69%, deduction before any kind of salary sac into pension

The fact that anyone nevermind the socialists on Reddit think this is fine is why this country is the way it is.

I suppose it might work if you plan to let the loan age out (assuming the government in future doesn't move the goalpost). And that your withdrawal rate from the pension never hits 40% (unlikely)