Still don't get the salary sacrifice thing....

fimonkey

I've read through the sticky, and the salary sacrifice only seems to be advantageous if you're earning above the high tax threshold.

My situation is that I am 30yrs old and earn 29805p/a gross. I have no current pension arrangements but have the chance to join my employers scheme which is the teachers pension scheme (final salary). HOWEVER, My employers say they only have to contribute 5% of my earnings to this scheme, but the scheme requires they contribute 13% of my earnings, SO they insist to join I have to take a 6% reduction in my gross salary and put that into the pension pot to make up the 13% (as well as my normal contribution).

I understand that this then means for mortgage purposes I will be able to borrow less, and the payout on the final salary scheme will also be based on my reduced salary figure.

Can someone please explain the advantages for me? (Basically to me it looks like my employers are being complete stooges and trying to rip us all off).

Cheers

dunstonh

Basically to me it looks like my employers are being complete stooges and trying to rip us all off).

Its the teachers final salary scheme. You couldnt be further from the truth.

For mortgage purposes it has no impact at all. Your salary is unchanged as you are not doing salary sacrifice but are making a contribution out of your earnings.

You will have a pensionable salary and that is the figure that the scheme works on. Not your actual pay (although it can be where there are no bonuses or overtime).

You need to be getting in this scheme asap. It is extremely valuable and you are throwing money away by not being in it.

EdInvestor

AFAIK the teachers pension is a straighforward final salary scheme. You pay x%, they pay x+y%, you get a defined pension based on your final salary when you leave or retire.

Nothing to do with salary sacrifice.

Perhaps the OP should seek further explanation about the scheme from his pension dept or union rep?

jem16

As already mentioned above, don't delay in joining the Teacher's Pension scheme.

I'm in the Scottish Teachers' Scheme which is near enough the same as the English scheme - you don't say which one you would belong to.

In England, as from 1st January you would pay 6.4% and your employer pays 14.1% making a total of 20.5%. Lots of info on the sheme here so you can see for yourself.

http://www.teacherspensions.co.uk/index.htm

If it's the Scottish scheme, you pay 6% and your employers pay 12.5%. This schem changes on the 1st April.

http://www.sppa.gov.uk/scot_teachers/home.htm

Both are final salary schemes, not salary sacrifice. Your mortgage would be based on your salary before any deductions.

shiredeon

As far as i'm concerned as it's only tax defered it makes more sense if you are a 40% tax payer to sacrifice some income(if you can afford it.

I get tax relief at 40% and hope that when i am drawing pension income i will be a basic rate tax payer.

fimonkey

No Seriously, my salary IS affected, I have to drop by 6% to make up the rest of the employer contributions, and this figure is the figure they then use as my GROSS wage. So my current salary is 29805p.a. Gross. If I drop this by 6% then my Gross wages becomes 28016p.a. Gtross and this is used as the figure then for any mortgae application etc etc.

I HAVE checked these facts and it is the case with my employers. (I KNOW the teachers is a good scheme, but I need to borrow as much as I can on potential mortgage first).

Is it legal for my employers to do this?? I can provide exact information if anyone wants it.

Cheers

fimonkey

Jem, Ed and Dunstoh,... I DO have to sacrifice part of my salary. To quote the exact wording frmo the document (pls excuse my spelling mistakes) ...

"The scheme currently requires a total of 19.5% (20.5% from 1st January) of an employee's salary, based on staff contributing 6% (6.4% from 1st January) of their salary, with the balance being made up by their employer. When the board of Governers agreed to include this pension scheme in the benefits to it's staff, it had to be on the basis that the employers liability for pensions contributions equates to the ratio of 5% employer/5% employee, established with the scheme previously offered. This means that, if you opt to join Teachers' Pension you will have to accept a salary reduction in order to pay the difference between the 5% employer contribution agreed by the board and the total amount of the employer's contribution (currently 13.5% to 14.1% from 1st January 2007).. The salary reduction based on the current contribution is 6.92% (7.17% from 1st jan 07). You should be aware that this amount could change, either up or down, in future years. You should also be aware that your final pension, lump sum payment and death in service benefit will be calculated on your reduced salary. The reduction in salary could also possibly have and effect on any mortgage application of other financial transaction where salary in a factor.

So please can someone explain to me if this is fair at the moment and how it works? (Is it only beneficial to my employers)?

Many many thanks indeed!

Andy_L

"When the board of Governers agreed to include this pension scheme in the benefits to it's staff.."

Hmmm. I've suspect that the OP may not be a government employed teacher, they might be working for an independent school thats "bought in" to the TPS but isn't prepared to pay the full employers contributions.

fimonkey

I don't work for a school and I'm not a teacher. (Sound like a riddle eh)? PM me if you can help with above question but need my exact situation (employer etc). i.e. what's in it for me to join this scheme but loose a part of my salary which i can't really afford to do so at the moment.

fimonkey

I don't work for a school and I'm not a teacher. (Sound like a riddle eh)? PM me if you can help with above question but need my exact situation (employer etc). i.e. what's in it for me to join this scheme but loose a part of my salary which i can't really afford to do so at the moment.

Andy_L

You get a taxpayer guaranteed final salary pension with all the bells and whistles in exchange for 5% contributions + 6.92% salary sacrifice.

You can't buy that pension on the open market for 11.92% of your salary. Hard to say how much it costs but various estimates put it at 20-30%. That extra 8-18% is whats in it for you.