Salary Sacrifice Advice Please ?

IKON

Hi All, My partner has a final salary pension which has been running now for about 8 yrs.Her employer has informed her of changes to be made to the scheme from this April. Her choices are to make a salary sacrifice were her monthly salary shall be reduced by 7%, this amount will then be added into her pension scheme.Or continue her current 5% payments into the scheme.however the latter will reduce any final pension payments made by 25%. We both know that like all pension schemes, extra has to be paid in to maintain the benefits.However her employer has stated that by reducing her salary this way they can offset some of the costs as she will in effect pay less NI contributions.We were wondering if these lower NI contributions would effect her state pension in years to come? I should point out that her employer is also agreeing to increase their payments into the pension fund.Also a thought is in the future when re-morgaging or appling for a loan might her payslips not reflect her true salary?Any thoughts on any pitfalls there may be agreeing to this salary sacrifice would be appreciated.

Old_No.7

Hi there, we had this option at my previous employer and it worked really well: I paid it quite a lot at the time as the NI bit added so much to the pot. We could determine the pay-in amount ourselves, and the employer paid all the NI contributions of the 'salary sacrifice' into the pension. Our accountant was very honest about it: effectively the company can contribute to a pension this way without it costing them a penny, as the money they pay in would have gone to NI otherwise (they could even opt to keep all or part of the NI themselves though!). They did warn us about the salary reduction affecting mortgage application etc, but they also said they could write a letter to the mortgage provider that would state the 'correct' salary. Don't know about the state pension, that wasn't mentioned at all (and I didn't think to ask).

newmoneyuser

A good document on the issue

http://www.hmrc.gov.uk/specialist/salary_sacrifice.pdf#search='pension Salary Sacrifice amount'

CIS

Lowering income in most cases will lower the State Second Pension accrued, unless your adjusted income is still above the Upper Earnings Level.

Your Basic State Pension would be effected unless your income drops below £4264 (£82per week).

Debt_Free_Chick

And the lower NI might have an impact on other contribution-based benefits.

Do you have any salary based benefits at work, in addition to the pension? What is the effect on those i.e. are they using the "notional" full salary before the sacrifice or the lower salary after the sacrifice?

Future credit applications will only take into account what she is actually being paid i.e. the lower amount. However, her pension contributions will be "nil" so her outgoings and net pay will be the same - some lenders go on "affordability" so they're only interested in net pay.

HTH

IKON

Thanks to you all for advice offered. A special thanks to newmoneyuser that link was very useful. As my partner has had to op out of the 2nd top up state pension (due to the rules of her company scheme) and earns far more than the min wage rules.Dept for work/pensions inform her that she would still be paying full NI contributions and as such should not effect any future benefits she may want to claim.Again thanks for all the advice people,looks like she will have to bite the bullet and accept the new rules.

exil

Of course if everyone did this, the amount going into NI (which pays for current state pensions) will drop significantly. Which makes me think the govt will eventually do something to stop it happening. But in the meantime here are a couple of articles

(AMICUS union)
http://www.amicustheunion.org/Default.aspx?page=2292

(Revenue/Customs)
http://www.hmrc.gov.uk/specialist/salary_sacrifice.pdf