Advice on Company Pension and Salary Sacrifice

gadgetmind

mania112 wrote: »

All good practice for upcoming exam mind you.

Hey, I was Mr Lazy and used HL's calculator. I'll work through your working later but tend to use my own spreadsheets.

jamesd

ladybelle wrote: »

So do I actually get more tax credit then ? as well as my company paying into the pension scheme ? That seems too good to be true ?

Yes, and it's true even if it does seem too good to be true.

I've called them myself in the past to check the general treatment of working tax credits with salary sacrifice. The lower income after the sacrifice is used when calculating entitlement.

But do call yourself to verify for your specific situation and set your mind at rest. It's not any sort of dodge, it's in the rules.

ladybelle

mania112 wrote: »

Using a formula for regular savings - 'FV=P((1+r)n-1/r)' (which is simple!):

£1,140 going into the pension each year (inc Tax Relief)

Assume growth of 5% per year

17 years to retirement

Maturity Value = £29,458.02

If an Annuity offers a rate of 5% at that time = £1,472.90 per year.

Worth noting of course the affects of inflation mean that income will be worth less than it does today.

Thank you so much - so its really difficult decision then because I'd obviously prefer to fund myself rather than rely on pension credit or something, but that would make £122 a month, which isnt a lot ! but better than nothing, but could it be that I would make myself short for these years now, only to then be penalised in retirement as I wouldnt be eligible for help if I had that amount coming in which wont really be worth much at all will it !

Cathieness

Can I ask for your advice? I am 29 and I am in a job I can see me lasting out for a while now. The pension seems pretty good so I want to join. I just don't understand it much.

If I contribute 3% or more the company will match my contributions up to 5%. This seems pretty good to me I have also been told that for every £200 you pay into a pension the taxman puts in a further £50. Is this right?

My other concern is that with the pension, my company provides life assurance at 3x my annual salary. Is this only the case while I am paying into the pension? Does that mean after I retire, assuming I pay into the pension until then, I no longer have life assurance?

I find this all quite confusing :rotfl:

gadgetmind

Cathieness wrote: »

I have also been told that for every £200 you pay into a pension the taxman puts in a further £50. Is this right?

Yes, but the exact mechanism can vary. If you contribute from taxed pay, you put in £200 and the pension company claims back £50, which is the tax on the gross figure of £250. The company's contributions are always gross.

The other way to pay is via "salary sacrifice". In this case, all the contributions come from untaxed pay, which additionally saves you and the employer the NI.

My other concern is that with the pension, my company provides life assurance at 3x my annual salary. Is this only the case while I am paying into the pension? Does that mean after I retire, assuming I pay into the pension until then, I no longer have life assurance?

This insurance is often called "death in service" and it's not uncommon for it to be tied to whether you're in the pension. After you stop working for the company, you will need your own life insurance. However, at this point, you usually don't have dependents so either need less insurance or none at all.

Cathieness

Thank you gadgetmind! The company does offer salary sacrifice which I think I am happiest doing as then I don't notice the money going!

Also my partner as I are just on the cusp of being able to get working tax credits, if my salary were slightly lower we might actually be better off as we will be below the threshold rather than just on it. That's if it works like that.

gadgetmind

Cathieness wrote: »

That's if it works like that.

It works *exactly* like that.

It might also be worth checking if your employer shares their NI savings with you. Mine boosts my contributions by 10% to say "thanks", which is nice given that I put in over 50% (yes!) of my salary.

ladybelle

So do you have to declare to the tax office you are doing salary sacrifice or when they ask you for your annual earnings - do I just say this is what I earned ? as I did not earn the higher amount as it went into my pension ?
Do they need to know I'm doing salary sacrifice or just what I actually take home?

jem16

ladybelle wrote: »

So do you have to declare to the tax office you are doing salary sacrifice or when they ask you for your annual earnings - do I just say this is what I earned ? as I did not earn the higher amount as it went into my pension ?
Do they need to know I'm doing salary sacrifice or just what I actually take home?

No need to inform HMRC. It's all handled via your payslips. When you get your P60 at the end of each year, you will notice our taxable income is lower.

I don't have a salary sacrifice scheme but as my pension payments come off before tax, my taxable income is always less than my gross salary. It's that taxable income that's entered on my tax return to HMRC.

gadgetmind

ladybelle wrote: »

Do they need to know I'm doing salary sacrifice or just what I actually take home?

I did drop them a letter, but only so their could tell their system to make some other stuff easier. For the vast majority of people, there is no need.

As jem16 says, your salary really is changing because your employment contract is tweaked to mean the company pays you less but your pension contributions increase. The company still retains a view of a "real" salary because this is used for life insurance figures and also to tell the likes of mortgage companies.

HMRC used to take a dim view of people changing their minds and going back to more take home pay, but even this has now been relaxed.

Sal sac really is the gift that keeps on giving. Some people even sacrifice so much that they trigger housing benefit (and much more) which is perhaps not in the spirit but it's (currently) within the rules.