Salary Sacrifice??

joeyvicks

Hi,


I'm considering a salary exchange for pension contributions but based on my own calcs it doesn't seem to benefit me greatly.


I currently earn 41,715 and contribute 2% to my pension and my employer does 6%.


With a 2% salary exchange I've worked out that my take home pay will increase by £9/month and pension contributions by £10 (which is the 13.8% of my exchange back from NIC benefit to my employer).


Is there no better benefit than this?

Linton

So you will gain £19X12/year. = £228. Your pension contributions amount to £834/year. So its hardly a kick in the teeth at more than 25%. I think your real problem may be that you are paying far too little into your pension - the more you put in the more you gain from Salary Sacrifice.

greenglide

Contribute more than 2% towards your pension would be the obvious "better benefit".

rpc

You are paying in £830 per year, and moving to salary sacrifice is benefiting you £228 on your numbers.

£228 improvement on an £830 contribution sounds like quite a lot to me! Put more money in and you will get more benefit from salary sacrifice.

joeyvicks

Developments since my last post in terms of a pay rise.


I've been bumped up to £48,000 and when I add my car allowance my taxable income is £53,500.


As I am over 50k I will have to pay back some of the child benefit I receive (stupid rule as my partner only does supply work!!! but anyway...)


I'm wondering if by sacrificing 3,500 I would be better off financially? I never upped my pension so I need to do this also so in reality would bringing my "salary" back down below 50k prove financially better?

jem16

joeyvicks wrote: »

I'm wondering if by sacrificing 3,500 I would be better off financially? I never upped my pension so I need to do this also so in reality would bringing my "salary" back down below 50k prove financially better?

Quite probably. A gross £3500 pension contribution will end up costing you £2100 minus your 2% NI saving so another £70.

How much Child Benefit are you losing by being over £50k?

xylophone

http://www.theguardian.com/money/2013/sep/28/child-benefit-pension-contributions-higher-earners

joeyvicks

Can anybody check my figures please to see if I'm getting this right.


My company will pay back into my wages 13.8% of my sacrifice and also my full sacrifice into my company pension fund. Employer currently pays 6% into my pension.


Current Salary - 48,000
Car Allowance - 5,520
Total - 53,520


I receive child benefit for two kids so £1,752 per annum. I need to reduce my nett salary to 50k to avoid the CB tax charge.


Option 1 - Up pension contribution to 4% and sacrifice 3.33% of salary (thus meaning net pay = 50k)

New Salary - 46,400
Pension - 1,920 (4% of 48k)
Take home/month - 2,742
Add company NI rebate - 18
Take home total - 2,760 per month

Pension pot
Company 6% = 2,880
Employee 4% = 1,920
Company 3,33% = 1,598
Total = 6,398 per year


Option 2 - Up pension contribution to 4% and keep salary as is meaning I pay CB tax

Salary - 48,000
Pension - 1,920 (4% of 48k)
Add CB tax (20.30+13.40 x 52w = 1,752 x (48,000-1920+5520) = 51600-50000/2 = 16% so £23/month
Take home total - 2,796 per month

Pension pot
Company 6% = 2,880
Employee 4% = 1,920
Total = 4,800

Option 3 - Put all of 3,520 into pension

Salary - 48,000
Pension - 3,520
Take home total - 2,739

Pension pot
Company 6% = 2,880
Employee = 3,520
Total = 6,400


If I've got the above numbers correct I will go with Option 1 as I will in reality be paying (2,796-2,760 = £36/month) in return for an extra (1,598/12 = £133/month) in my pension and avoiding the CB tax.


My other concern is that if I sign up for salary sacrifice it is for a minimum of 1 year, therefore if following the election something changes in regards to all this I will be stuck with sacrificing salary when potentially I don't need to.

Dunnit

Perhaps the better place to start would be thinking how much money you want when you retire. That way, apart from reducing your NI contributions and tax, and keeping your child benefits, you may have a better appreciation of where you want to get to. One day you will be living on your pension contributions so whether it is £5k or £25k which you want to live on post 70 a bit further thought now rather than your take home pay may be of most benefit.
Pension changes would not happen in the same financial year so ignore the election.

Paul_Herring

minimum of 1 year

"Life changing events" notwithstanding. Not sure if a change of tax-regime counts as life changing however, at least not unless it "significantly alters an employee’s financial circumstances"...

Can't really comment on your three options, but since your employer appears to be giving you the whole of their employer NI contributions that they'd otherwise be paying (it's salary neutral for them to do this) in your shoes I'd see if I could contribute more (in fact I did.)