Salary Sacrifice??

DavidLaGuardia

debbt wrote: »

Hi,

I am the director and only employee of my ltd company. I pay myself just above the LEL to limit my PAYE to a very nominal amount and distribute to myself dividends as and when my cash flow allows. (Nothing since March!) I have only just read about salary sacrifice and am thinking about increasing my notional salary so that I can put extra savings into a pension by getting my company to pay all the NIC reduction. Would this be worth it as I find PAYE a real pain and don't want to pay my accountant even more money to do my payroll. My total income last financial year was only £6780 salary gross plus £4500 dividend. Trying to build up a reserve after a loss the previous year. No wonder I'm skint. Although doing a bit better this year thank goodness.

I have several pension schemes but most are money purchase and I need to seriously increase my contributions otherwise I might as well stop now and so qualify for pension credit. I usually pay lump sums every few years into a PPP or start an ISA.

I've tried the standard life calculator but it's not working at the moment.

Help.

You do not need to use salary sacrifice or increase your salary.
1. You can pay directly into a personal pension from the company. This is tax deductable as an expense and is not a benefit that attracts any National Insruance Costs.
2. Employer contributions are not subject to the same limitations as personal contributions (the higher of earned income or £3,600). Subject to not exceeding maximum lifetime funding, £255,000 can be contributed ths year without a tax charge.

jamesd

Keith_Swinford wrote: »

I must admit to being a bit suspicious. Once I have changed my conditions of employment and therefore made it non contributory, what's to stop the company then taking a 100% pensions holiday and stopping all payment anyway killing my pension dead in the water?

The pensions regulator is what stops such things. Defined benefit pension schemes are closely monitored and also pay into the Pension Protection Fund to provide a guarantee if the scheme fails. Use of salary sacrifice to increase the efficiency of company payments into such a scheme is a good move as it decreases the pressure on the company balance sheet that is one significant driving force behind closing such schemes for new members or reducing the value of the benefits they provide.

JONESAD

My company are introducing a salary sacrifice scheme. They are not passing on the NI savings and are proposing that the benefit is passed on as an increase in take home pay rather than an increase on pension contribution.

I am surprised by this as all the literature I have read in the past talks about an increase in pension contribution and the examples I have seen suggest it is more efficient to do this.

Would welcome comments on this.

Thanks

Paul_Herring

JONESAD wrote: »

My company are introducing a salary sacrifice scheme. They are not passing on the NI savings and are proposing that the benefit is passed on as an increase in take home pay rather than an increase on pension contribution.

I am surprised by this as all the literature I have read in the past talks about an increase in pension contribution and the examples I have seen suggest it is more efficient to do this.

Would welcome comments on this.

There are two lots of NI contributions associated with salary sacrifice - your own and your employers. The following numbers are probably not accurate, but should be close enough to get my point across...

For most (i.e. above the minimums, and below the maximums - use listentotaxman, if you want the numbers for your situation) for every £100 sacrificed, you'll be not paying £11.00 NI (as listed on your payslip) and your employer will be not paying £12.80 NI (rarely, if ever, listed since it's a business tax thing, not yours.)

Some employers act a 'pay-neutral (to them)' policy whereby they will contribute their £12.80 into your pension, but they are by no means required to do this.

The only 'increase' in take home pay you will see is that instead of your pay going down £100, it'll go down £89. Income tax (I believe) should not be an issue unless you're bordering on a change in marginal rate and your sacrifice changes the rate.

Now, whether you think it's good/bad/indifferent that you'll get £100 gross contribution into your pension for a 'net payment' of £89 is basically what you're looking at I think.

JONESAD

Paul_Herring wrote: »

There are two lots of NI contributions associated with salary sacrifice - your own and your employers. The following numbers are probably not accurate, but should be close enough to get my point across...

For most (i.e. above the minimums, and below the maximums - use listentotaxman, if you want the numbers for your situation) for every £100 sacrificed, you'll be not paying £11.00 NI (as listed on your payslip) and your employer will be not paying £12.80 NI (rarely, if ever, listed since it's a business tax thing, not yours.)

Some employers act a 'pay-neutral (to them)' policy whereby they will contribute their £12.80 into your pension, but they are by no means required to do this.

The only 'increase' you will see is that instead of your pay going down £100, it'll go down £89.

Thanks for the response. As I said the company are not passing on their NI savings.

My question was more to do with wether it is more efficient for the savings to be passed on as net pay increase or pension contribution increase.

Thanks.

Paul_Herring

Me wrote:

Income tax (I believe) should not be an issue unless you're bordering on a change in marginal rate and your sacrifice changes the rate.

I might be wrong on that - just plugged £35,000 and £34,000 into my own link and (dividing the net difference by 10) gives me a net change of £69, not £89.

Paul_Herring

JONESAD wrote: »

Thanks for the response. As I said the company are not passing on their NI savings.

My question was more to do with wether it is more efficient for the savings to be passed on as net pay increase or pension contribution increase.

Not sure I'm following what you're trying to ask.

You sacrifice (using my example) £100 Gross for a net effect of a decrease in net pay of £69.

Or you increase your net pay by £69 by not paying in that £100 into your pension.

Is that what you're asking?

JONESAD

Paul_Herring wrote: »

Not sure I'm following what you're trying to ask.

You sacrifice (using my example) £100 Gross for a net effect of a decrease in net pay of £69.

Or you increase your net pay by £69 by not paying in that £100 into your pension.

Is that what you're asking?

Aololgies if I am being a bit slow here.

The examples in the literatutre they send to us are based on a 20k salary and says our net salry will increase by £110 per year. But having read other examples on the internet it would seem that again using 20k example, rather than increasing net pay by £110, net pay could stay the same and pension contribution could increase by £160 per year. Wouldn't this therefore be a more efficient way of using a salary sacrifice?

Paul_Herring

JONESAD wrote: »

Aololgies if I am being a bit slow here.

The examples in the literatutre they send to us are based on a 20k salary and says our net salry will increase by £110 per year. But having read other examples on the internet it would seem that again using 20k example, rather than increasing net pay by £110, net pay could stay the same and pension contribution could increase by £160 per year. Wouldn't this therefore be a more efficient way of using a salary sacrifice?

Ah, right.
Gross £20,000 -> net £15,724.20
Gross £20,160 -> net £15,834.60
Difference -> £110.40

So yes, that calculation is correct in that sacrificing that £160 only 'costs' you £110.40, or put another way an effective 45% increase on your contributions - not something to be sneezed at, however
1) do you have a pension fund set up at the moment
2) if so, are you contributing anything to to it at the moment?
3) if not are you considering adding more than just this £160 per year?

JONESAD

Paul_Herring wrote: »

Ah, right.
Gross £20,000 -> net £15,724.20
Gross £20,160 -> net £15,834.60
Difference -> £110.40

So yes, that calculation is correct in that sacrificing that £160 only 'costs' you £110.40, or put another way an effective 45% increase on your contributions - not something to be sneezed at, however
1) do you have a pension fund set up at the moment
Yes it is the company group personal plan
2) if so, are you contributing anything to to it at the moment?
Yes, about 7% and they are comntribution 5%
3) if not are you considering adding more than just this £160 per year?

the 20k is not my salary, just an example.