Salary Sacrifice??

marklv

mitchaa wrote: »

I have a young family and a big mortgage just now so although I agree with you, my plan was increasing my pension payments significantly (Upto 25%) when my mortgage was paid off. I have 18yrs left on that without overpayments so plan is to get it paid off somewhere between my 40th and 45th birthday. That then leaves me 20+yrs to fund my pension with a portion of what I would be saving by not having a mortgage.

That's the plan anyway. It was all easier with a FSP.

Sounds a good plan to me - time is on your side. You've done very well for yourself and I don't begrudge you for one single moment, don't take me wrong.

I'm 43 and only just earn as much as you - in London as well.

jamesd

Whether the employer NI goes to your pension depends on your employer. Some employers keep it, others add it to their contribution. With employee and employer NI set to increase by 0.5% in April 2011 that'll slightly increase the NI gain for you but the main gain at higher rate is getting the tax relief each month instead of at the end of the year, so you have the money invested for longer with less work for you to do.

mitchaa

A further question as I am going to take this to my HR dept...

In my example, £3k pension contribution from myself matched by £3k from my employer, will the employer save 12.8% on £6k or 12.8% on £3k?

marklv

mitchaa wrote: »

A further question as I am going to take this to my HR dept...

In my example, £3k pension contribution from myself matched by £3k from my employer, will the employer save 12.8% on £6k or 12.8% on £3k?

The employer would be saving on their own contribution, and you on your contribution, meaning that their saving would be on the £3k.

mitchaa

marklv wrote: »

The employer would be saving on their own contribution, and you on your contribution, meaning that their saving would be on the £3k.

You'll have to help a little further, my brain doesn't appear to be working this morning.

If the employee is paid £50k, but sacrifices £3k, the employer will have to pay 12.8% on the £47k portion. (So that is a 12.8% saving on the £3k they now pay me less)

If they match this £3k, isn't this £3k liable for a 12.8% levy aswell?

In effect, the company are paying me £53k (£47k in salary and £6k in pension?)

Or am i going down the wrong path here?

mitchaa

Actually reading it back, the employer would still obviously be liable for their 12.8% on their £3000 contribution.

Brain working again, apologies, I get it now

Cheers

marklv

mitchaa wrote: »

You'll have to help a little further, my brain doesn't appear to be working this morning.

If the employee is paid £50k, but sacrifices £3k, the employer will have to pay 12.8% on the £47k portion. (So that is a 12.8% saving on the £3k they now pay me less)

If they match this £3k, isn't this £3k liable for a 12.8% levy aswell?

In effect, the company are paying me £53k (£47k in salary and £6k in pension?)

Or am i going down the wrong path here?

My impression is that salary sacrifice saves NI on both contributions - yours and the employer's. Otherwise there would be no incentive for the employer to do this. But why do you want to find out about the employer's saving? After all it's up to them what they do with it.

jamesd

marklv, you care because if at higher rate you're saving 1% and the employer is saving 12.8% so there's a lot more incentive for them to have you use salary sacrifice than there is for you.

marklv

jamesd wrote: »

marklv, you care because if at higher rate you're saving 1% and the employer is saving 12.8% so there's a lot more incentive for them to have you use salary sacrifice than there is for you.

True, but you cannot demand a rebate of what the employer contributed, can you? Few employers will hand over their own tax benefit to the employees.

jamesd

Depends whether the employer wants to encourage higher rate tax payers to sign up or make more than the minimum contribution or not. The more they put in, the greater the incentive for the employees so there's benefit to the employer if they do it for say payments over the minimum for matching funds.