SMART Pensions

foraminafera

My employer has introduced "Smart Pensions and Smart Everything" as well, and has automatically opted us in (we can opt out - but for Year 1 only). In addition a number of other benefits (Sickness Insurance/Life insurance/Private medical cover/etc) have been included in a "salary sacrifice" option. When I went to set up my details (nominees for insurance and to reset benefits to the original level (they were discounted to a minimum by default) I was required to sign a daunting acceptance of a change in Ts & Cs.

I had been "opted in" by default, but was required to accept a long-winded change in Ts & Cs just to vary the options? *why*? It also placed a "current cash value" on current benefits which had been (until then) absolute benefits (TUPE rules from a previous employer in part) and allowed the company to vary the scheme and the cash value of the all benefits at any time after a minimum period.

Ok this could be all fine/etc - but why so "heavy handed"?

I get a company contribution if I opt to change my AVCs to salary sacrifice (6%) which is worth while, but I am twitchy.....

Opinions welcomed

derekoak

As you can see from my post above: If you salary sacrifice the employer does not have to pay 11% employees NI or 12.5% employers NI. A gain to them of 23.5% of your sacrifice.So giving you only 6% seems at first glance to be a bit mean, perhaps I do not understand all they do for you.

isasmurf

The employer doesn't pay employee's NI, the employee does, hence why it's called employee's NI.

foraminafera

We were told the Company saving would be 1% - possibly an error - and I have been wondering how they fund us to 6% while making 1% unless something else is going on.... Maybe I'm seeing a problem when all I got was bad information (no surprise there based on history!).

So I am just twitchy now about the "big hammer" we have to sign just to change our SMART elections - *why* when we didn't sign anything to opt in -we were told that's the way it was....

There have been a few issues about "HR based communication" in the past ......

SO - I can opt for a SMART pension only: or the whole kaboodle including AVCs and 6% added onto the AVCs and "flexible benefits" when they are turned into a salary sacrifice. The risk factor (chancellor aside) is if the Co decides to vary the VALUE of benefits against the fixed cash "pot" we are given today to fund thoise benefits. e.g. Family Medical Cover £800pa (P11D); in 2 years it could be (say) £1200 and rather than get the coverage and a P11D value I would have to fund the rise myself by additional salary sacrifice.

At least I know where I stand, and it is 6% on the AVC component of pension contributions vs risk.

derekoak

isasmurf wrote:

The employer doesn't pay employee's NI, the employee does, hence why it's called employee's NI.

you are right but lets take 2 scenarios:

Lets take 2 scenarios:
..................£100 gross pay......salary sacrifice £20

net pay................. 67.....................53.60

tax 22%.................22............. .......17.60

emp/ee NI 11%........11......................8.80

gross pay..............100.....................80.00

emp/er NI 12.5%......12.50.................10.00

cost to employer....112.50..................90.00


If you go for no salary sacrifice,(the left hand column) and out of your net pay, pay to a pension £13.40 (this is the difference between the 2 net pays above) the provider can claim back tax = £1.28 for every £1 net. in this case £17.15. Now compare this with the salary sacrifice column, as part of the deal you agree with your employer to send all the gain to your pension pot as a donation from the employer. The costs to you and the employer are now the same but your pension pot has £22.50 (this is the difference between the 2 employer costs above) not £17.15. £22.50/ £17.15 = a 31% increase.

In the case of foraminafera I was saying that an employer who offers 6% extra in exchange for salary sacrifice is making a profit, although I do not understand all about AVC's and any other benefits that may be paid as part of the deal

Derekoak

Nick_C_4

SO - I can opt for a SMART pension only: or the whole kaboodle including AVCs and 6% added onto the AVCs and "flexible benefits" when they are turned into a salary sacrifice. The risk factor (chancellor aside) is if the Co decides to vary the VALUE of benefits against the fixed cash "pot" we are given today to fund thoise benefits. e.g. Family Medical Cover £800pa (P11D); in 2 years it could be (say) £1200 and rather than get the coverage and a P11D value I would have to fund the rise myself by additional salary sacrifice.

My company's going to a "flexible" benefits package like this next year too (although not including a salary-sacrifice pension). I hadn't thought of the possibility of having to fund increases in cost of things such as insurance cover, though. Thanks for the thoughts.....