Salary sacrifice - what's the catch?

perfume_waggon

I’m about to switch my pension arrangements into a salary sacrifice scheme and just need to confirm to my employer what percentage of my current gross salary I wish to sacrifice. I’ve been told that my net pay will stay pretty much the same whichever percentage I choose. This sounds too good to be true, so it probably is.
What am I missing?

Zero_Sum

If your pension is a defined benefit scheme I wouldn't do it as it'll affect your pension as its salary linked.

If its defined contribution, doing it this way just saves both employer & employee a bit in NI contributions.

mark55man

My scheme is DB and they use a reference salary for calculation of benefits which is pre salary sacrifice amount.

I would be astonsihed if they are trying to get away with that

getmore4less

perfume_waggon wrote: »

I’m about to switch my pension arrangements into a salary sacrifice scheme and just need to confirm to my employer what percentage of my current gross salary I wish to sacrifice. I’ve been told that my net pay will stay pretty much the same whichever percentage I choose. This sounds too good to be true, so it probably is.
What am I missing?

100%

obviosly BX

StephenM_2

Zero_Sum wrote: »

If your pension is a defined benefit scheme I wouldn't do it as it'll affect your pension as its salary linked.

If its defined contribution, doing it this way just saves both employer & employee a bit in NI contributions.

My pension is final salary and it makes no difference to my pension whether I do salary sacrifice or not. They base the pension on the pre-sacrifice salary. They also base various other benefits (life assurance, group income protection, overtime) on the pre-sacrifice salary.

mania112

your net pay will not be the same.

But its the most 'efficient' way to make pension contributions because the Tax and NI contributions will now be based on a lower gross salary.

You should always make pension contributions, so if your employer is offering you to do this by salary sacrifice, that's the way you should do it.

From your employment contract point of view, I would suggest you make sure they update your contract to show exactly your salary + pension contributions

MoneySaverLog

Mine is salary sacrificed, as are some optional flexible benefits I believe so only positive benefits I can see with this scheme.

Final Salary is the average of the last 3 years of employment I believe with our scheme so that's when I need to be earning the most as far as I am aware. So even if it lowered my salary it would not make any difference to pension in the National Grid DB scheme.

beyondthehorizon

I think you may have the wrong impression or what I believe is the wrong impression

"I’ve been told that my net pay will stay pretty much the same whichever percentage I choose. This sounds too good to be true, so it probably is."

Your net pay post salary sacrifice will stay pretty much the same if you select the SAME percentage that you are currently paying. If you select a higher percentage then your net pay will be lower.

The reason for implementing salary sacrifice is that there is a small benefit to the employee in that you pay slightly less national insurance as it is based on a lower salary and the employer will also make a NI saving which may be considerable for the organisation as a whole.

In effect, it is a win-win for the employee and employer and you can guess who loses out.

beyondthehorizon

mania112 wrote: »

your net pay will not be the same.

But its the most 'efficient' way to make pension contributions because the Tax and NI contributions will now be based on a lower gross salary.

Regardless on how you make pension contributions through an employer scheme (normal or through salary sacrifice) income tax is still the same the only saving is the NI saving.

But you are right in saying that paying into a pension scheme is the most tax efficient way of saving.

StephenM_2

I've been salary sacrificing for my pension for 10 years or so. I've always been a bit surprised that successive chancellors haven't tried to stamp it out.

perfume_waggon

Thanks everyone for your comments so far. This isn’t a final salary scheme so I don’t think that will be an issue.

I’ve been given an example of how my pay slip would look should I increase the percentage I contribute to my pension to 12% (from 7.5%) using the salary sacrifice scheme and my net pay is the same. The company would contribute their NI savings to the pension as well.
Just to be clear - I'm not being put under any pressure to increase my contributions, it's just that I've looked at the cost of care and compared it to my projected pensionincome and calculated that I need to increase the percentage to about 29%! So this sounds like a good way to increase it without too much pain. If I've understood it correctly of course...