Salary sacrifice?

zudecke

Hi guys,

Thinking about opting back into my pension scheme and paying about 5% (matched by employer) into it.

There's an option called "Salary sacrifice" next to it however and I wondered if anyone could explain what this is?

Regards,

Z

CLAPTON

it nominally reduces your salary and the pension payment is paid direct by the company
this will save you the NI contribution and saves the company their NI contribution

p00hsticks

CLAPTON wrote: »

it nominally reduces your salary and the pension payment is paid direct by the company
this will save you the NI contribution and saves the company their NI contribution

But you do need to be aware that, athough it may save you NI contributions, there is a downside in reducing your salary in this way - for example, it could result in the the amount of life insurance offered by your company (often expressed in salary multiples) decreasing or impact on the amount you could borrow on a loan/mortgage

THere's a 'sticky' thread above that discusses it;
https://forums.moneysavingexpert.com/discussion/174519

zudecke

I don't understand that.. Why would anyone want to sacrifice a portion of their salary to get a reduction in NI? In almost all circumstances I'm sure, you would be better off keeping a higher salary than having your NI discounted?

If I'm on around £35k, what would you do in my shoes?

Linton

zudecke wrote: »

I don't understand that.. Why would anyone want to sacrifice a portion of their salary to get a reduction in NI? In almost all circumstances I'm sure, you would be better off keeping a higher salary than having your NI discounted?

If I'm on around £35k, what would you do in my shoes?

The sacrificed salary goes into your pension!

CLAPTON

zudecke wrote: »

I don't understand that.. Why would anyone want to sacrifice a portion of their salary to get a reduction in NI? In almost all circumstances I'm sure, you would be better off keeping a higher salary than having your NI discounted?

If I'm on around £35k, what would you do in my shoes?

No the take home salary is higher

the pension payment is the same and the pension tax relief is the same but because the amount is NI free, the resultant take home pay is higher

however as already pointed out, there may be draw backs in some situations

gadgetmind

p00hsticks wrote: »

it could result in the the amount of life insurance offered by your company (often expressed in salary multiples) decreasing or impact on the amount you could borrow on a loan/mortgage

Mortgage companies understand sal sac and my company bases insurance etc. on "nominal" salary rather than the post-sac salary.

StephenM_2

gadgetmind wrote: »

Mortgage companies understand sal sac and my company bases insurance etc. on "nominal" salary rather than the post-sac salary.

So is my life assurance, and also my overtime payments. Likewise a new benefit we are getting from the start of next year - Group Income Protection - will also be based on nominal salary rather the post salary sacrifice salary. There are no disadvantages to me in being in salary sacrifice , only the advantage of paying less NI.

mysk_girl

It shouldn't affect higher earners, but if you don't earn much and enter a salary sacrifice scheme, you can end up below the Lower Earnings limit for NI - therefore no contributions based benefits, pension accrual etc. Can also affect maternity pay, my mat pay was lower because I salary sacrifice for childcare vouchers and pension.