Salary lowered due to pension? (not nec. sacrifice)

Daniel_Elkington

It is illegal as it is a variation of contract without consent. Remember you can accept a variation verbally so be careful who you speak to.

It is breaking the spirit of the rules - We have a pensions DEFICIT, that means the amount we pay in tax does not cover the current outgoings on old age pension. The rules were brought in to cover the gap and allow the private sector to take over. It was either this or a phased 8% tax hike in NIC's. If employers don't bother then they are effectively screwing their country for some short term profits.

They have to start at 1% of BAND earnings (not even the total pay of an individual) - rising to 3% by 1 October 2018. I'm sorry but a couple of annual pay freezes over the years should cover that.

Talk to the unions, http://www.ehow.co.uk/how_2050636_create-union-work.html, or form one and get the !!!!!!s sorted. If they have been posting profits for the past few years (you can find this out by paying Bizzy.co.uk £20 for a years sub) then they are greedy pigs and it needs stopping. If they have been posting losses then you may have to take it - better to have 90% of £20K than 100% of 0K.

jamesd

An employer who mentions cutting pay in most cases is simply failing to apply any intelligence they possess. The increase rate is low enough that it can be concealed in reduction of normal pay increases unless employees are on minimum wage.

Such employers are also likely to try to use the lemon of the auto-enrollment bunch, NEST, to try to encourage as many people as possible to opt out.

Please use the information provided by Daniel Elkington to report daft employers to the pensions regulator.

Eoinmc

Hi all,
My current employer pays 4% of salary into a Scot Life scheme for evryone here 6 mths, (I've got £10k saved in it), although at 47 this is not a lot. I only earn £16706 a year. He has told us that this auto enrol thingy means me and the gang are going to have to start paying in some of our wages too and that as the firm is struggling a little of late all this pension talk has had him rethink things in general. He proposes paying 3% going forward on the understanding that we match him, (that's 3% out of my pay whether I like it or not), otherwise he is not paying in at all. He says he'll get me to pay in 1% this year, 2% next year, then 3% in 2015 . The secretary has said he'll look at going back to 4% in 2016 as long as we match him at this point. It's a pressure finding even this extra 1% of pay now to get the 3% he's offering but do I really have a choice? Is having a pension really worth it when it seems to buy so little these days, (my Uncle retired on one last year at 65 and his Prudential pension plan had £45k ish in it....he only gets £42 per week from this after saving in it for over 28 years!!!

My boss is looking at giving all of us a cash plan thingy which he says is to make up for cutting the pension contribution, (must be cheaper for him)....he says it helps meet some duty of care legislation for eye tests for van drivers like me.

Does this sound fair or am I better challenging him to stick to what we have got already. My wife says I can't really moan as she does not have any pension in her work....grocery shop and that my letter of job offer did not have any pension on it anyway.

Sorry for all of the queries but I am new to this online stuff and would welcome any comments.

dtsazza

Eoinmc wrote: »

It's a pressure finding even this extra 1% of pay now to get the 3% he's offering but do I really have a choice?

Yes, you should most definitely have the option to opt out - to not make your contribution in exchange for not receiving your employer's. (Whether it is a good idea is a different matter...)

Is having a pension really worth it when it seems to buy so little these days, (my Uncle retired on one last year at 65 and his Prudential pension plan had £45k ish in it....he only gets £42 per week from this after saving in it for over 28 years!!!

The short answer is yes.

The long answer is - it depends, but probably.

You get out what you put in. Annuities nowadays will typically get you a twentieth of the lump sum each year - so for a £10k pension you'd need a £200k pot.

Don't forget to include the tax relief and employer contribution in your assessment, as well as investment growth. In your case, you'd be paying 0.8% of your salary (due to 20% tax relief) in order to have 4% of your salary added to the pension pot. That means your money is quintupled overnight, which is pretty fantastic performance. You would only have to put in £10k net in order to have £50k in your pension pot.

And investment growth can be huge over a working lifetime. No-one can tell for sure how well investments will perform, but over 40 years of regular investments it only takes 3% (real) growth to double your contributions.


The short retort for those who think pensions aren't worth it is "how else do you expect to have money to live on when you're no longer working?" The tax breaks, plus the "free" money from your employer's contributions, mean that you are unlikely to find an alternative option that gives you a larger bang for each buck you put in.

Does this sound fair or am I better challenging him to stick to what we have got already. My wife says I can't really moan as she does not have any pension in her work....grocery shop and that my letter of job offer did not have any pension on it anyway.

Well of course if you can convince the boss to pay in 4% for no employee contribution, that's better than you having to contribute 1% to get the same. But on the whole it does sound fair. Most decent pension schemes match employee contributions 1:1, so yours is still relatively generous up until the 3% contribution point. And it meets the new minimum legal requirements.

jamesd

Eoinmc wrote: »

my Uncle retired on one last year at 65 and his Prudential pension plan had £45k ish in it....he only gets £42 per week from this after saving in it for over 28 years!!!

How much was your uncle paying into it each week for those 28 years? That's the part that people tend to forget to mention.

Lets start by looking at what £42 per week means. At age 65, half of men in normal good health are expected to live until around 88 years old. So on average your uncle can expect to get £42 per week for 23 years, a total of £50,232. If he lives longer, he'll get more, shorter, less. I don't know if he has an annuity and if it is one that increases with inflation so I can't adjust for the way the value of money has changed and will change due to inflation.

I don't know how much he paid in either, so lets look at the deal your employer is proposing to get some idea.

Eoinmc wrote: »

He proposes paying 3% going forward on the understanding that we match him

Your proportion would normally be before tax and if salary sacrifice is used before NI, so if you're a basic rate tax payer your net cost would be 68% of 3% (3% less 20% income tax and 12% NI). So 2.04% net cost to you to get 6% into your pension pot.

So, lets apply that to your uncle and assume he got the same sort of deal. He probably did better because the basic rate of tax was often higher than it is now, so he's really gaining pretty nicely on the income tax rate change.

You uncle would have paid himself just 2.04/6 * £45,000 = £15,300. For which on average he's going to get out £50,232. But this ignores investment gains and he probably had those as well, so he probably really paid in significantly less than that. As before I've ignored inflation, assuming everything was adjusted for it, both contributions and income.

At this point you can probably see that you will make out big time long term by signing up and getting the tax relief and employer money as well as the tax and perhaps NI relief.

Lots of people don't think long term but those who do can do really well out of pensions when there's employer money added to the pot.

If you wonder about the effects of inflation, over the last hundred plus years the UK stock market has grown in value by inflation plus about 5.2% a year. Savings accounts at about inflation plus 1% a year. Wages at about inflation plus 1% a year.

Eoinmc

Thanks guys.....appreciate the effort in communicating this in lay mans terms. I have to admit it seems to be that my boss is trying to do the right thing as everyone else I talk to tell me theirs is putting this stuff on the back burner until the govt actually force them to put something in place and that may be a couple of years away!

Even the cash plan offer now looks like a really good idea as an eye test set me back £24 at the weekend and it looks as if this sort of stuff is going to get paid for by the firm.

I fess up that I was probably just behaving selfishly.....having 4% paid in now and having firm tell me I'd have to pay in myself to keep something less, 3%, sounds like a con....now I realise that they are just giving me a kick up the backside to make the whole thing worthwhile.

Again, thanks fortaking the time to reply.....they have an adviser that comes round once year and I will make a point of putting her on the spot this time round to see if her thinking is as clear as yours.....I am keen to hear how she gets paid for all of this....my brother's firm have just agreed to pay their adviser £150 per year from the pension he has, (although there are only 12 staff in his place and their is a Clerical Med pension). He pays 2% of his pay and his boss also pays 2% so I now see that I am not that badly off!

:beer: