Salary Sacrifice??

jamesd

It must be a genuine sacrifice of money by you and it is vital that it is not easy for you to routinely modify the amounts and terms except when there are significant life events like getting married, or annually. The more control you have, the greater the chance is that HMRC will reject it as a failed sacrifice attempt. See the HMRC page on salary sacrifice.

jamesd

Nothing wrong with you getting the benefits and them offering a more attractive package to employees. You might check that they will continue to match contributions, if they have been doing that.

Debt_Free_Chick

Personally, I would be wary.

There are costs to setting up salary sacrifice .... legal advice, changes to the payroll system, communicating with staff, changes to terms & conditions of employment. My budget for introducing this to 1,200 staff is £100k and it will save the company £100k pa in NIC at the current rates. So, the company will see no saving in the first year.

If your company is giving you all the NIC saving, then they have to fund the costs of introducing SS in the first year, as they are not keeping the NIC saving to pay for this. Can they afford to do this in the current climate? Most employers are looking to bash their expenses down, not increase them.

On the face of it, you're on to a good thing - but that will be of no benefit if the extra expense that the company faces takes them to the brink of insolvency.

spragger

I have used SS for inputting a bonus into my money purchase 'money box' (I don't count it as a pension)

As a high rate taxpayer i could see the advantage of SS for my employer but not for me.
They hang onto all their savings.
Have i calculated that right?

jamesd

Mostly right. You save 1% NI and don't have to wait to claim the higher rate tax back. Some employers will split the employer NI benefit or give it all to the employee, others don't.

aah

I am dim. I thought pension payments into an occupational scheme were not taxable in any case when they come off the payroll. My pension payments are not taxed.

Does that mean that ss is already operational. Or that additional payments could be ss, meaning i can contribute as if it were net of tax?

jamesd

The money from the workplace scheme would have been taxable if you'd received it as income. It's common for workplace schemes to just take care of all of this in the background, so all you see as a basic rate tax payer is the before tax amount.

If you were using a third party pension you'd see your after tax contribution then near the end of the following month you'd see the basic rate tax paid in by HMRC.

If you're making enough for higher rate, sometimes people find that they thought that was also being taken care of but it wasn't, so they have missed years of higher rate tax relief by not claiming.

Ask your scheme administrator whether it is salary sacrifice. If it's not and you're a higher rate tax payer, ask how they handle that and if you're supposed to be claiming it back from HMRC.

In theory you can check whether it's salary sacrifice with a payslip checker. If the employer NI is right for the total including pension then it's not salary sacrifice. If it's right for the amount after the pension is taken off then it is salary sacrifice.

Debt_Free_Chick

aah wrote: »

I am dim. I thought pension payments into an occupational scheme were not taxable in any case when they come off the payroll. My pension payments are not taxed.

It it's an occupational scheme - yes. Your contributions come off your gross pay - tax is then based on your gross pay less your pension contributions, so you get the correct tax relief there and then.

NI contributions are on your gross pay and your NIC ignores any pension contributions you make.

Does that mean that ss is already operational. Or that additional payments could be ss, meaning i can contribute as if it were net of tax?

No - see above.

SS would do nothing to affect your tax situation, but you would probably pay less in the way of NIC.

To complete the picture, if your employer does not operate an occupational pension scheme, but pays pension contributions to a Stakeholder or Personal Pension plan, then your contributions are taken from your net pay. Those contributions are net of basic rate tax and if you're a higher rate taxpayer, you need to claim the extra tax relief (the difference between the basic and higher rate) from HMRC. Salary sacrifice would give you a slight "timing" difference as you would get higher rate tax relief immediately, rather than having to claim it from HMRC. And there's the NIC saving too.

What's an occupational pension scheme? It's a private pension scheme run by your employer. Ask your HR department if you're not sure, or check the pension scheme booklet/literature. If the scheme has trustees which include employees/managers of your company, it's almost certainly an occupational pension scheme.

iscrimger

I signed up to a Salary Sacrifice Scheme but I'm a little concerned about it now so I'm hoping someone can help.

Firstly I received a pack which was titled 'Pensions Saver' - nowhere mentioned Salary Sacrifice but the pack explained what this saver was all about etc. I was unable to search online for what it was about as they didn't mention the salary sacrifice. I first found out about this when I got my wage slip and it has 'Sal Sac'.

As I understood by entering into the scheme I would earn a little extra each month because my NI contributions would be less and the company would pay less NI. It seemed like a win win.

We weren't asked to sacrifice any salary or decrease our earnings. My employer seems to simply make contributions through a Salary Sacrifice to my pension scheme on my current salary.

The pack said if we didn't want to enter the scheme we had to use the Opt-Out form included. This wasn't included in anyone's pack and people had to chase up the form. Finally just days before the closing date someone got a form and photocopied it and left it in the office at work - I didn't complete one and therefore opted into the agreement.

At the time I wasn't too concerned, but at the minute I'm looking at all my financial dealings and this scheme doesn't seem to smart a move.

My basic salary is £15.5K and as I understand now because I pay less NI I could have my state pension cut?

I'm also concerned this scheme may be hiding something more sinister as the company don't seem as trustworthy as they once did. Can the company do anything to alter my pay & conditions now or in the future now that I'm in the scheme?

This scheme came about after the company was taken over and knowing what I know now it seems everything happens for a reason. I'm just not sure what the reason behind this scheme is?

jamesd

Mostly you can relax. Salary sacrifice pension schemes are a good thing and it's almost always the right thing to do to join one if one is available to you.

The NI contributions for the State Second Pension (S2P) depend on income up until the income is just under £40,000. So you will get reduced S2P contributions and a reduced State Second Pension.

That's OK, though, because the gains from salary sacrifice mean that you can expect these gains to get you more pension than the S2P that you lose. Unlike the S2P you can also choose to take a 25% tax free lump sum when you retire and can choose to take this independent pension before state pension age, both subject to the rules of this scheme. If it's a money purchase scheme where you can choose your own investments to use, you can do those things.

You and all those signed up for this are almost certainly going to be better off whatever happens than making the same pension contributions than without salary sacrifice. To get full details of the state benefits that can be affected, read the HMRC Guidance on Salary Sacrifice starting on the sixth page.

It's also quite common to offer things like childcare vouchers or insurance through salary sacrifice schemes. Those are also likely to be good deals, but not as surely as the pension part.

The new company might be bad, but this isn't likely to be one of the reasons. Anyone who doesn't have salary sacrifice scheme available should be asking their employer to start one. The saved NI is almost free money and that's a good thing.