Salary Sacrifice??

penpon

Paul_Herring wrote: »

2 things:

1) Hang around for one of the experts 'round her to correct me on any inaccuracies if there are any.

2) None of that likely applies now, since the Government seem to be intent on getting rid of S2P (the £140/week pension reforms you may or may not have noticed in the news recently - if that comes in, there will be no S2P regardless of whether you would normally have accrued it or not; on the loss for future pensioners.)

worth keeping an eye on, interesting article, going to be a lot of unhappy ,people., it wont let me reply with links in, si im having to take them out,lol.

andrewjwhite

Hi Guys,

i was hoping someone could help me with salary sacrifice, as i'm the first person in my company to have set up a salary sacrifice pension and the poor payroll women doesn't know the answer to these question.

i don't add a large amount to my pension a month only £160 though salary sacrifice. I only then get £22.08 add totalling £182.08 in my pension each month. something seems wrong here, like no tax is add.

my understanding is for ever £68 you have add 12% Ni + 20% tax = £100. so i should have almost £250 add each month.

could someone help me understand the sums better so i could go back to my work or even show them this forum, or is that correct ?

thanks

AJ

Paul_Herring

Salary Sacrifice happens before your gross wage meets the NI and Income tax calculations.

So, if you get paid £2000 per month, and you sacrifice £200 per month, then:
1) £200 goes into your pension.
2) Your NI and Tax is now calculated on the remaining £1800 (rather than the £2000 it would have done previously.)

So that £200 already includes the perceived NI and income tax - there is nothing to refund.

In addition (or as a result):
1) You don't pay income tax on that £200 (which you could claim back if the contribution had been made out of post tax income.)
2) You don't pay NI on that £200 (which you wouldn't normally be able to claim back - you gain out of this)
3) Your employer doesn't pay employer's NI on that amount (13.8% currently) - some employers voluntarily add some or all of this to your contribution, but they are not obliged to do it.

So, in summary, there is nothing to add to your £160, unless your employer volunteers the NI they'd normally pay on that.

Which in your case £160*13.8%= £22.08, so it seems they're giving you all of it. Your employer's calculation would appear to be correct.

andrewjwhite

Thank you very much, that makes sense.

Paul_Herring

Other calculations that may be of interest on your £160

1) Your 20% Income tax on it would have been £32
2) Your 12% NI on it would have been £19.20

So your £160 contribution (£182.08 total) is only costing you £108.80 out of your previous net pay.

hyperhypo

Hope this is still on topic...

i use ss in my current workplace stakeholder pension....i pay more than the requisite 10% to gain a 10%contribution from employer.

I'm 53 now wanting to stash away as much as possible.
I have 12k pa in a final salarly scheme due out at aged 63.

I was intending to increase my contributions - currently 25% of salarly (15 + 10%) to reduce exposure to 40% tax and to retain child benefit for my son.

As my wife doesn't earn a great deal of money would i be able to salary sacrifice into a pension fund for her.....she has not provision other than state entitlement - as well as my own,
and note this in the tax return which i will have to complete for the first time as am insisting on claiming child credit.

The idea is that as my old final salary scheme pays out 12k intoday's money i would be better off building up a pension pot for my wife to make most of tax on earnings ?

Does this make any sense? My apologies if i've put the question in the wrong part of the forum.

thanks

jamesd

She can pay up to £3600 gross and will get 20% basic rate tax relief as part fo that even tough she may have no tax to pay. You can't use salary sacrifice to do this but you can give her the money from your after tax pay and she can pay that into a pension in her own name.

Since your wife doesn't earn much she's going to get only 20% tax relief. You get 40% for higher rate plus 2% employee NI saving and maybe some employer NI saving added as well. If you want to transfer money to your wife this means that the better way to do it is to wait until you can take a pension lump sum and use that lump sum to give her money to make pension contributions in her own name. For personal pensions that age is 55 so yo're very close already.

But given your tax rate and availability of salary sacrifice you might well be better off for a personal pension to take the lump sum and income at age 55 and recycle the income into more pension contributions. The lump sum can be used for pension contributions for her, or, subject to some limits that you must check, for contributions into a pension for you, getting a second chunk of tax relief on the money.

Does she have a salary sacrifice pension scheme available?

Amishwannabee

I have had a personal pension for the last 14 years but have only been paying the minimum into it. I work part time now and my company is offering salary sacrifice pensions and they also contribute. Would I be best to stop paying into my personal pension (approx £60 per month) and go into company scheme ? Thus Leaving personal pension dormant? or Transfer my personal pension into work scheme? Recent valuation gave transfer value of £17K. or Can I continue with both schemes? All advice gratefully received and I am in my early 50s.

Dannycelluk

Confused....

Our company has just offered salary sacrifice. How does this affect shift workers, all of the paperwork we have been sent has examples with basic salary. Is the ss scheme calculated on this or pensionable pay? E.g if I am paid a salary of 30k and a shift allowance of 15k. How will the scheme work?

Our scheme seems different to others on here, the money we save gets put back into our net pay and not back into our pension.

Also why does the savings amount reduce over 42k?

jamesd

Dannycelluk, the employee national insurance rate drops from 12% to 2% at around 42k.

The scheme should have a definition of what is pensionable pay.

It's entirely possible to have the savings put into net pay instead of increasing the pension. Just different ways of illustrating how it works. If you don't want that, just increase the pension payment a little until you get to the same pay.