Salary Sacrifice??

Debt_Free_Chick

moneymouth77 wrote: »

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?

And that's exactly what a pension does - albeit with some restrictions over access, but with some (now minor) tax breaks to compensate for the restrictions.

A pension is just a tax wrapper for a savings/investment plan.

jamesd

moneymouth77, no, it wouldn't be more sensible to keep the salary and invest it. The tax benefit, even after allowing for paying tax in retirement, means that a pension even without salary sacrifice is a more efficient way of generating income - more income for each Pound saved - than identical investments inside say an ISA.

micko2602

Hopefully people are still looking at this thread.
My company is looking at introducing SS (giving it a different name as companies do) and they have made the following statement;

"employees will agree to have their salary reduced by their current pension contribution and the Company will contribute the same sum directly into the Pension Fund. The individual will make a NIC saving and so will the Company. The Company has chosen to invest its NIC saving (currently 12.8%) into the individual’s pension fund as well, so actual pension fund contributions will also go up".

Seems ok as they are putting their saving into the employees pension fund.

However they currently contribute 10% to the employees 5% contribution. As I read that statement it reads they will match the employees contributions so saving 5% of their current pension contribution. So would I actually benefit?

GETAGRIP_5

I interpret it differently. I do not think they are trying to make employees worse off.

The statement does not mention there 'old' contribution they are stating that the amount you sacrifice will be paid into the pension as an employer contribution (that is what makes it a ss scheme).
Say you contribute £50 gross per month now then the total contributions currently are made up as follows
1) Deduction from net salary + tax relief £50
2) Employer contribution £100

With salary sacrifice they are saying that 1) now becomes an employer contribution so you need to make sure (I will be gobsnmacked if they are not) they are still contributing the £100 as well
So you will get with SS
1) Employer contribution (sal sacrifice) £50
2) Employer contribution £100
3) Employer contribution (NI saving) £6.40

So your contributions into pension will increase by the NI saving passed on by the company (£6.40 in example). Also your take home will go up by marginal rate of NI (11% or 1% of amount sacrificed).

So yes you will benefit just check for peace of mind that they will continue to contribute the 'old 10%' contribution.

kira_akira

If you were to work for a not for profit organisation this opens a wide range of items that you can salary sacrifice however as you say you are a business analyst I assume you are working for a profitable company.
Now there are still benefits working for a profitable company. Each FBT year (fringe benefits tax year) you can salary sacrifice 1 laptop computer...now the trick with salary sacricing a laptop is that you cannot package the accessories that come with it IF they are listed seperately on the invoice. If they are not listed seperately and you request a "bundled" invoice you can package everything on the invoice - a lot of people dont know this!
You can also package a PDA although I believe some employers dont offer this, though large company tend to have this option available - and they should as it is perfectly legal.
Your other two options are:
1. Extra superannuation payments before tax. The only issue here is that you dont get the government co-contribution (or as much depending on your circumstances) if you are contributing pre-tax funds.
Last but not least you can take out a novated car lease. Again most employers should offer this to you. This basically means that instead of buying a car and paying off a loan for 5 years you are "leasing" a car for a certain period of time, and you are then able to swap this for an updated model once the period is over. You make the monthly payments through pre-tax funds - this is where the benefit comes in.
You also get the option to pay the residual value on the car at the end of the lease which means you get to keep the car.

Hope this has helped please feel free to ask me any further questions you may have!

jamesd

kira_akira, please provide evidence of being able to salary sacrifice a laptop computer and own it personally in the UK rather than in Australia, where FBT and super exist.

Paul_Herring

My last job advertised (5? years ago) a scheme whereby you could use SS to acquire a computer - government scheme IIRC, but the government put the kybosh on it - current company is doing something similar at the moment with bikes.

s0127786

Hey All,

My own personal situation - I'm going to write this in full detail so it's easy to follow as I've just signed up for a salary sacrifice scheme at work:

My pre sacrifice benefits:

£23,320 salary, £0 to pension

My post salary sacrifice benefits:

£19,804.40 salary, £3945.60 pension
(employer contributes full employer national insurance at 12.8 %)

It's easier to see how this is a good thing on a monthly basis:

Pre-sacrifice (monthly):

Gross Pay: 1943.33
Income Tax: 280.75
National Insurance: 161.38
Student Loan: 62.40

Net Pay: 1438.80

Post-sacrifice (monthly):

Gross Pay: 1650.37
Income Tax: 222.16
National Insurance: 129.15
Student Loan: 36.03

Net Pay: 1263.03

What this effecitvely means is that for a reduction of my net take home pay of £175.77 (1438.80 - 1263.03) I have a pension contribution of £328.80.

Seems like a pretty good deal to me unless i'm missing something obvious ...

jamesd

That's a good deal. Better than mine, my employer keeps all of the employer contribution.

marklv

My opinion is that a salary sacrifice scheme is a very good move if you earn £40k+, but not such a good idea if you earn less, as it could affect your entitlement to various state benefits based on NI contributions, as well as your state second pension/SERPS. If my employer offered it I would jump at the opportunity; it's better than merely increasing your pension contributions because with salary sacrifice you don't pay NI contributions on the salary that is sacrificed.