Salary Sacrifice??

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Mike_Chis wrote: »

I am 64 this year and have been in a salary sacrifice scheme for about 3 years. Trying to save as big a pot as possible (about 80K today) with one year to work.

I earn 39K and have a 12K military pension on top - so I would be a higher rate tax payer. Salary sacrifice seems a great deal, as the company puts in 7.5% of my salary and ALL the NI savings. I curently sacrifice 30% but am thinking of going up to 50% for this final year.

To my simple mind, I am not only saving the NI, but also the income tax - although I often read that the tax side of it is "neutral". Am I wrong ? What do they mean by that ?

I guess it would be neutral if I was putting a similar amount into my stakeholder pension pot outside the salary sacrifice scheme and claiming it back at the end of the year.

To be honest, I probably would not be saving half as much if it was not for the simplicity of the salary sacrifice scheme. I wish it had been available when I started work 7 years ago at this company.

Go get some advice because I believe there is something niggling about the final year of your working life before taking retirement benefits.

From memory it has at least in part something to do with the 25% rebate from your pension fund so that you could go to 100% of earnings and get an immediate 25% back. Whether that means you only have to put in 75% I do not know.

Paul_Herring

!!!!!!_here wrote: »

Salary sacrifice sounds offputting, it suggests, well, a sacrifice.

Maybe because that's what it's actually doing.

giger

I'm currently a 30 something paying into a part final salary pension at work. I have the option of 'pension plus' whereby i'll be paying slightly less NI as a result of me sacrificing an amount equal to my current pension contributions which my employer will then pay directly for me. I have also contracted out of S2P so currently have these contributions redirected in to my own personal pension each year. Salary scarifice will give me a small gain each month in take home pay, and the examples provided by work show that my gain far outweighs my loss in annual S2P (hope i've got the term right).

Can anyone tell me if there is any reason why I shouldn't join this scheme? Surely a slight gain in addtion take home pay is better than no gain, and as i've been contrtacted out of S2P for the past 10 years I am not expecting to receive this benefit in my state pension in the future. Is there anything additional that I may need to be aware of that my company have not made clear?

Zelazny

Generally speaking, Salary Sacrifice is great and I'd not hesitate to use it. The only potential downside is in the case of your death before drawing a pension. Some schemes have a death benefit related to the employee contributions paid, and salary sacrifice may or may not count towards this, depending on how the rules are written. That said, it's not likely to be relevant, and the benefits far outweigh the potential loss for me. YMMV

jamesd

Assuming that you're not on an income in the £14,000 or less sort of range the main drawback is losing a little S2P money which in turn will reduce your contracted out rebate a little. This only applies if the sacrifice is to below the upper accrual point, currently £40,400 a year. So if it's only higher rate income that you're sacrificing this doesn't apply.

You do lose the flexibility to change the contributions at any time. To be considered a real sacrifice HMRC rules require things like limiting changes to once a year or after significant life events like marriage or birth of a child.

giger

Thanks guys, pretty much confirms what I already thought. I actually opted out last year (the companies first year) as I was unsure of the scheme and my questions surrounding S2P could not be answered by work, however I now have the opportunity to opt in and my own research matches the above.

archiebold

I have a limited company employing just myself as director and my wife as company secretary. I have a very small personal pension I contribute monthly to and my wife has a private stakeholder pension she pays monthly to. We would like to additionally do a salary sacrafice of £300 a month each but would we have to stop paying into our current plans or can we contribute to both? When making the salary sacrafice can it be shown on our payslips as a £300 deduction paid by employer from gross pay into pension? or is this not allowed? If it can be shown on the payslip this would make things far easier and less complicated if we ever need to increase our mortgage or claim on our income protection insurance policies whereby wage + benefits needs to remain high.

jamesd

Salary sacrifice can be shown on a payslip as a deduction from nominal gross income. Companies using salary sacrifice quite often report a "scheme salary" that is the pay before salary sacrifice. The pay calculations for tax and NI need to use the value after the deduction. Both of the places I've worked that operated salary sacrifice showed the gross pay before sacrifice and the sacrifice amount on the payslip.

I can't say how your income protection policy provider would regard this. Their rules could use either salary measure, since your legal salary is the one after sacrifice and has to be for the sacrifice to work. Larger companies would normally ensure that the agreement was related to scheme salary, not post-sacrifice salary. Check.

dew301261

Hi Folks

I've read some great tips on here which help me especially around salary sacrifice, which I'd never heard of.
I was one of the so-called 'gold plated' pension contributors, well a nurse actually with an NHS pension, now frozen with 80K in my fund after 12 years service.
I now work for a private healthcare provider and am about to join the company Group Personal Pension through Scottish Widows.
I must admit at 49 years old I'm experiencing a true culture shock :mad:
I think in today's economic landscape contributions of 3% of salary from me and 6% from my employer is generous and I get salary sacrifice :j
I earn 35K pa and realise I don't have enough time to grow a big pension in the new scheme. I can add more than my 3%, of course, but I'm wondering whether any extra I put in will just go to service management fees over my remaining 18 years, based on retiring when I'm 68 years?
Question: should I invest any extra money in an alternative tax efficient vehicle to my pension or should I be putting everything I can into the pension scheme? Any advice appreciated

Kallisti

EDIT: I thought the child benefit changes were the 2012/13 tax year, but it seems it might be 13/14? So this wouldn't be for 18 months anyway...

I've just joined a new company who have a salary sacrifice pension scheme. It's a grand total saving of about £47/year for me, but I think it help on the way to another benefit...

If I sacrifice all my pay down to the higher rate threshold, can I then continue to get Child benefit about (£1752.40/year)? My salary is £47k so I'm already quite close - Am I correct in thinking that next year's threshold will be £42,475?

That means if I sacrifice 10% into my pension bringing my salary down to £42,300, I get the £1752.40 child benefit.

I'm not sure if the child benefit is taxed? If not, it actually leaves me £210 better off for the year and 5% more in my pension?

If that does work, another option would be to take the child care sacrafice for the other 5% - reducing my normal costs a bit...?