Salary Sacrifice??

[Deleted User]

I am interested in S.S - especially after the article yesterday in the financial part of the Mail On Sunday.

I contacted my employer - a large employer of over 7000 people - only to find they don't offer the SS scheme to anyone other than those staff who claim childcare vouchers.

I would like to know if there is any way of forcing their hand to offer the scheme to the rest of us. From what I have read the employer also gains out of this.

Would this come under any equal opportunites legislation or something else maybe? Is is legal for a company to say that only people claiming childcare vouchers be able to participate?

Any advice or legal pointers as to where to start my research on these schemes being available to ALL employees and not the select few would be most welcome.

salty_seadog

Hi, I am contracted out of s2p and am about to start a pension with the Merchant Navy pension fund. Will salary sacrifice have any impact on my contracted out fund as it seems i would be making less NI contributions through salary sacrifice.

Freefall123

I am new to the forums and finding so much information a bit bewildering. Could one of you helpful experts help me decide which is better for my pension contributions.

My salary this year will just take me over the 40% tax level. I will earn approx £42,000 and taking my tax allowance of £5480 and the higher rate tax band of £34600

42,000 - (34600 + 54800) = £1920 will be charged at 40% ( plus any interest on savings I have!)

I was going to start paying in £200 a month into my stakeholder pension and should be able to reclaim 40% tax on £1920 of this contribution. So that should put

1920 x 1.4 = 2688 + ( 480 x 1.2 = 576) = £3264 into my pension a year?

or if I can persuade my employer to do salary sacrifice and give me his NI contributions the checker at

http://www.adviserzone.com/calculators/salarysacrifice.php

gives me

a yearly contribution of £234.86 x 12 = £2818.32 to my pension?

to me salary sacrifice doesnt work out so good or am I missing something?

Any advice appreciated

Freefall123

Judwin

Freefall123 wrote: »

I was going to start paying in £200 a month into my stakeholder pension and should be able to reclaim 40% tax on £1920 of this contribution. So that should put

1920 x 1.4 = 2688 + ( 480 x 1.2 = 576) = £3264 into my pension a year?

No. It doesn't work like that.

If you have £1920 of earnings in the HRT (40%) tax bracket, then your pocket would only see £1152 of this . The taxman would take the other £768.

To reclaim all the tax you need to make a GROSS payment of £1920 into your pension plan. In practice this means you have to pay in NET of 20% (lower rate tax), so you would write a cheque for £1920 - 20% = £1536 and give/send it to your pension provider.

The pension provider will then reclaim the 20% tax from the taxman, thus grossing your pension contribution back up to £1920.

Then at year end, you need to declare your GROSS £1920 payment into the pension plan to the tax man on your tax form. He will then refund you the 20% extra tax - i.e. he'll send you a cheque for £384.

So at the end of the day, it'll cost you £1152 (the money you could have got in your pocket) for a pension contributin worth £1920.

If you can get your employer to make salary sacrifice and/or company contributions, the deal is even better, since you';; also save on NI contributions too.

Cheers,
Judwin

Freefall123

Thanks Judwin - I think I got that

I am just trying to compare what will give me the biggest boost into my pension for a monthly £200 payment either as salary sacrifice or out of my net earnings and then claim tax back. Is that a fair comparison?

Freefall

Judwin

Freefall123 wrote: »

Thanks Judwin - I think I got that

I am just trying to compare what will give me the biggest boost into my pension for a monthly £200 payment either as salary sacrifice or out of my net earnings and then claim tax back. Is that a fair comparison?

Freefall

Salary Sacrifice doesn't make a lot of difference unless your employer is prepared to contribute some or all of the National Insurance savings.

The penny will drop if you look at it from your employers perspective....

When the employer pays you £1920, he has to deduct tax and Employees NI from that £1920. Tax can be 20% or 40%. NI can be 11% or 1% (I think). So both of these 'taxes' affect the ammount of money that ends up in your wallet. In the worst case, your wallet might only see £1325 (£1920 - £211(NI) - 768(Tax)) The Tax will be refunded if you make a matching payment into your pension plan, but the NI won't.

However, In addition to the taxes deducted from your pay, the employer has to pay an additional employers NI contribution, which is 13% (I think). Therefore, your £1920 'pay' will actually cost your employer £2170.

If you opt to do salary sacrifice, then you get your employer to make a payment into your plan, and this comes off your Salary. Because it's deducted before tax and NI, there is no tax or NI liability for you - you save both your tax, and your employees NI. Your employer also saves their employers NI too - 13% or so.

The trick is to get your employer to agree to pay some or all of this 13% into your pension plan too. If you can get them to agree to that, then it can effectively cost your wallet £1325 (the net amount you sacrifice) for a gross pension contribution of £2170 (including tax, employers NI, and employees NI).

However, if your employer won't contribute the employers NI they save, and if you're only paying 1% NI, then salary sacrifice will only be 1% better.

The personal NI rate bands are similar to the tax bands, but you need to check which ones you fall into.

Cheers,
Judwin

CarolynH

Employers NI is 12.8%. But you're close enough to make no difference.:D

Zamora1_2

Can I do this ?

I recently set up a stakeholder pension which my employer agreed to pay £500
a month into. So this is gross of tax and free from NI and employers NI.
Or does he have to pay the contribution in net of tax ie £400 but how does he run this
through PAYE without incurring the employees and employer NI costs ?
Basically, is a stakeholder pension suitable for doing salary sacrifice or do I need another product ?

attiq76

Hi All,

I came to know that if I enter into a salary sacrifice scheme, i can't leave it during my job with the same employer.

I asked my HR to pay for MBA fees and make a salary sacrifice contract. They replied that the salary sacrifice will continue even after I finish MBA. I want to do salary sacrifice for 3 years.

Can someone please give more info on this?

jamesd

Zamora1, you can do salary sacrifice with a stakeholder pension. The employer can make the payment without any need to run it through PAYE payroll calculations.

attiq76, that is a limitation of that specific scheme. You must use whatever the scheme rules say. There is nothing in salary sacrifice in principle that prevents you from opting out after one year or many years. There are HMRC principles about how often it can be changed but a decision once a year or when getting married or for other major life events are normal times when people can change.