Salary sacrifice - working out what % to sacrifice to keep takehome pay the same.

Troubleatmill_2

Hi all.
Company just announced that we are moving to salary sac pension scheme.

All the company NI savings - the company will give to the employees as additional pension contributions. - Not too bad ;-)

However - what I'm trying to work out is...

If I want my take home pay to stay the same - what level of salary should I sac. ( my kingdom for an Excel spreadsheet on the net that works this out )

Right now I'm a 40% taxpayer and I'm on full AVC contributions (same scheme - so no addn'l admin charges ).

I only get 1 shot a year to change what I can contribute - so I really want to get the math right.

Thanks for any and all help offered.

isasmurf

As your a 40% taxpayer I assume you will be paying NI, therefore if you want take home pay to remain the same you shouldn't sacrifice any salary. Any salary that you do sacrifice will lower your gross pay but increase your take home pay.

You don't pay tax on your pension contributions, so whether you or your company pays your contributions will not affect tax, but why your take home pay is higher is because as your salary is reduced by your pension contributions, you don't pay NI on that bit of salary which increases your take home pay.

Troubleatmill_2

....does that means I can up my AVC bit from 15% to 16% or 17%

I'm happy to keep my takehome pay the same and put anything extra into my pension. ( otherwise Mrs Troubleatmill would just spend it )

Thanks again
Troubleatmill

Milarky

Troubleatmill,

Just to clarify. You are a 40% taxpayer and therefore above the upper earnings limit, so that you pay marginal NI contributions [employee] at 1 percent and your employer pays at [what?] 12.8%... So by sacrificing £100 of 'gross' income, say, you should receive £113.80..

At present £100 of gross pay first becomes £99 [with the £1 NIC taken] and is then taxed at 40%, but the tax relief is claimed staight back on top of your net contributions...

So thats a ratio of £99 [from £100 'gross' pay starting point] NOW to £113.80 on full salary sacrifice.

As Isasmurf points out, your net pay will remain the same unless you change the rate of contributions and/or your basic salary changes. All that happens via the salary sacrifice is that the employer/employee NI which would otherwise have been payable is diverted into your pension plan

Troubleatmill_2

I'm getting it - Thanks for bearing with me both ;-)