Salary Sacrifice??

Paul_Herring

lewic wrote:

NI was set up for a purpose - to provide a free healthcare system and state pension for all.

That may have been what it was set up for all those many, many years ago, but by no stretch of the imagination can it be said that today:
a) NI only funds the NHS (c.f. tobacco taxes) and pensions (civil service anyone?)
b) Pensions and the NHS are only funded by NI.

i.e. the perceived ring-fencing you think applies to NI doesn't happen.

Basically rendering the rest of your argument as hyperbole.

Sorry.

jamesd

lewic, the current system funds state pensions and benefits from current taxation, including NI, just like any Ponzi/Madoff scheme, with the new tax payers paying for benefits from the past ones. It works fine if people die fast enough for the retired person count to stay the same but better health care and standards of living mean that hasn't been the case, so the cost on the new "investors" grows.

If a company uses salary sacrifice that money is invested to pay the pension of the employee in the future. That causes some increase in taxes now but makes the problem in the future less bad because it reduces the costs that will have to be paid from general taxes then.

At present our pension problem is that the number of retired people per working person is increasing so anything that shifts some of the cost to those who are not yet retired but will retire in the next 20 years is beneficial. If we don't shift enough we'll have too high a tax load on the children and grandchildren of the retirees in that timeframe.

This is also part of why tax relief on pension contributions is a good thing: it shifts some burden from future taxes to the person paying into their pension and trying to be better off than the state pensions alone would allow.

DavidLaGuardia

jamesd wrote: »

DUS, you're almost correct that if income tax was the only factor then to get 500 less of net pay you'd ask them to pay 833.33 by salary sacrifice because 0.60 * 833.33 is 500. You also save 1% employee NI on the 833.33 so the pension would end up getting 841.66 paid into it.

You're completely correct on b and c.

NO! Sorry James but I have to correct your calcualtaions here which have grossed up from a net of "tax only" figure.

DUS has a total of tax plus NI deducted which is 41%

Hence the gross equivalent of £500 is £500/59% = £847.46

One of the points about salary sacrifice is that you don't just gain from the NI, but also the tax reclaimed is effectively higher than a personal contribution which grosses up the net figure forgetting that NI has also been taken off. In terms of the proportion of addtionasl tax involved, the mpact is even greater for a basic rate tax payer paying NI

Examples.

£100 gross less tax £20 less £11 NI = £69 net
£69 net into pension grossed up to £86.25 which is tax credit of £17.25
Whereas £100 salary sacrifice saves on the £11 NI plus £20 of tax
=An increase in tax relief ignoring NI of £2.75

£100 less tax £40 less £1 NI = £59 net
£78.67 into pension grossed up to £98.33 reclaim £19.67 NET cost = £59
Whereas £100 into salary sacrifice gets back the £1 NI plus the 67p
=An increase in tax relief ignoring NI of £0.67 (small but still extra!)

jamesd

DavidLaGuardia, you're right, the 841.66 figure is wrong. It's really that 847.46 that you gave. Thanks for the correction!

DUS

jamesd wrote: »

You wrote earlier that your employer isn't paying NI. Who is? Is there simply some gross pay agreement and you absorb the employer NI cost yourself? If so, you'd also be saving the employer NI because there would be no need to pay that on the sacrificed money.

James, according to HMRC regulations for foreign companies without a legal entity in the UK, the Austrian employer does not have to pay NI. I was quite disappointed when I found this out, since my boss in Vienna had agreed on paying all the employer´s NI savings into my pension pot. :-(

Too bad.....

DUS

clevereply

you need to correct the calculation so that you can get a good pension amount.

Self Managed Super

Jamie_R_D

so much info.... no idea if this is a good thing or not for our situation.

my wife has been been opted in to the 'pension salary exchange scheme' unless she opts out. it is provided by Davidson asset management.

Our situation is this; i am self employed, we are debt free, married and have a 12 week old baby. no mortgage (we rent) and my wife was full time employed on Gross £13,838. she is still with the same company but will go back in a few months time part time... maybe 3 days a a week.

they have said this.
Gross earnings before 13838 after 13433
income tax before 1472.6 after 1391.6
gross earning -tax & ni 893.53 after 849
deduct current pension contribution of 332.11
net disposable income 11139 after 11192

the above is based on her full time earnings, she will be going back after maternity leave part time...

i dont see that any of the benefits of employers NI are being passed on and i cant get my head around what difference it will make when she is part time with other benefits such as tax credits.

any help much appreciated! im confused. co....

Dick_here

Jamie_R_D wrote: »

net disposable income 11139 after 11192

This is the key, based upon your figures. You'll be £53, thats £1+pw, better off. Free money :beer:

techmax76

Hello Ben,

I have searched the Google about the salary sacrifice. I'm not so sure about it because its my first time reading this phrase. From what I have understand its an agreement between an employee and the employer. Here is the exact explanation from what I have searched from Google.

" A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. It is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value"

I hope this helps you.

moneymouth77

I wouldn't accept it unless you definitely need to do it, just save instead of bolstering your pension. If you have to lower your outgoings and change your way of life to assure life later, wouldn't it be more sensible to keep the salary, save some, and then invest it?