Opting in SMART

Sai's_Dad

Hi guys/ladies

I have been paying into my employer's money plan pension (6% me and 6% them) for just over a year. This morning I received a letter/booklet explaining that I will be opted into a SMART (save money and save tax) from 1st May 07 unless I decide to opt-out. This basically means that a salary of £30K will drop to £28,200 with my take home increasing to £198 p/a.

Basically this will mean that both parties save money on NI and tax contributions, but it does involve a salary sacrifices on my part and they paying all my 12% pension contribution.

Unlike most salary sacrifices, my sick pay, holiday pay, pay reviews etc will not be affected as they all will be based on my pre SMART salary.

They also seem to imply that my state pension will not be affected as long as I don't fall below the £5,500pa bracket.

I recently received a state pension forecast of £141p/w (84+ state pension and £50+ second state pension). This however is based on me making the same NI contribution for the rest of my £29 years working life (I am 36 now).

Can you please tell me if opting into SMART will reduce my forecasted state pension of £141 and what else should I watch out?

Also for future re-mortgage applications whereby the bank request salary confirmation from my employer. My employer will send them evidence of my adjusted salary + salary sacrifices. Buying childcare vouchers will not be affected as long as I don't earn less than £4,524.

Sorry for rambling on, but basically all I want to know is whether this is a good scheme or not? Most importantly if opting into SMART will affect my forecasted state pension?

david78

As your pay after (SMART deductions) will be £28k+ your state pension will not be affected. As you point out your pay needs to drop to £5,500 to make any difference.

Generally, SMART can be a good thing as you save National Insurance (as does your employer).

jamesd

The basic state pension isn't affected but what do they say about the additional state pension S2P contributions being reduced, because those are based on the pay on which you pay NI contributions? If you're contracted out of S2P your rebate going to your pension will be reduced because that is based on your taxable income.

You entitlements to all state benefits will depend on the actual taxable pay you receive. This generally puts you in a slightly worse position, while for the company it is pure gain.

To cover this loss for you it's common to split the benefit of the reduced employer NI contributions, splitting them 50:50 between employer and employee. What does this scheme do with them? Give them all to the employer?

You're still likely to be better off signing up but it's worth knowing just how the company is splitting the costs (to you alone) and benefits (to you both).

david78

Hi Jamesd,

But his taxable income doesn't change.

Before SMART Salary = £30,000, pension contributions = £1800, taxable income = £28,200.

With SMART. salary = taxable income = £28,200.

jamesd

david78, see the end of the sharingpensions description and for "taxable income" read "income on which national insurance contributions are paid".

david78

Can't see it!

Sai's_Dad

There is no mention of split NI contribution savings between employer and employees. I reckon this is purely designed to save the company money and a £198 savings for me as an employee.

I simply don't want this scheme to affect my £141p/w forcasted pension as it's only a savings of £14 per month for me.

Do you think a drop (sacrifies) of £1800 a year would have any effect on my forecasted pension?

Many Thanks

Guys

jamesd

The drop from 30,000 to 28,200 will reduce the NI you pay and that will reduce the S2P you're credited for.

Using the increased take-home pay in a personal pension can more than cover this effect, so long as it's more than the 25 or so a month that's the practical minimum for a personal pension purchase.

Do both and you should end up better off in retirement than you would have been before.

Cook_County

Remember that this has been sold to your employer by an adviser who will take a fat payment for saving the company's on payroll costs.

Your interests are not the same as the company's. For example, you will lose if you are ever made redundant or take your employer to a tribunal over a dispute because your pay is lower so you will get less redundancy pay, compensation for unfair dismissal etc,

You will also lose S2P and potentially could also lose if the law changes in future to disallow these techniques because your employer may just not put you back to where you were.

It would be far more reasonable if your employer gave you a lump-sum as a sweetener for signing up to the revised employment contract.