Employer Contribution being paid in salary

allofushere

I originally posted this on Tax Credits therad but have been advised to move it to Pensions:

I took a job on 14k a year. When I went my induction I was told this included 5% pension contribution from my employer. They do not have a pension scheme set up , but pay the 5% so that employees can invest in a pension of their own, until 2016 when the company set one up. To be honest all staff simply use this as part of their salary with no one actually using the extra monies for a pension.
My wage slip has no mention of this pension payment, it simply says salary £x, but my boss tells me that when the pension begins in 2016, the 5% will then become the company pension contribution, thus reducing my salary by said 5%.
I also pay tax and national insurance on the total, therefore on the 5% pension contribution.
It all sounds a bit suspect to me but my main question is do I tell tax credits that my salary includes this pension contribution? It's not on my payslip but it is mentioned in my contract.
Or as I don't use this extra for a pension will they conclude that it is part of my salary?


I am not paying into a pension. I was offered the job on £14 k per year. On about my third day at new job I was given my contract, which stated that a 5% employer contribution to a pension was included in my salary. My point is surely my actual salary is £13333? This, plus 5%, makes £14k.
I was told that I could do with this extra as I pleased, but, when pensions become compulsory, this extra will be used for the company contribution of the pension.
So in 2016 when pensions are started my salary will drop by the company contribution.
I realise I probably don't need to inform HMRC as I am using the extra as income. It just did my seem right that I could be offered a job on a given salary only to find out once I'd taken the job that it was nt actually a true salary rate. Granted, for three years I get a but extra but it is only making my wage up to an acceptable rate of pay for my job. All seems a bit sneaky.
Time to look for another job I think .

After posting the above it was pointed out that my employer may be trying to circumvent the new pension rules.

Any advice welcome.

CLAPTON

As far as tax is concerned you are being paid 14k a year.
so you are correctly being taxed and NIed on 14k per year.

If you choose to pay into a private pension then you will receive tax credit on your contributions.


Otherwise I have no idea whether your employer is trying to circumvent the new rules .. it depends whether they apply to him as the new rules are being phased in over a period of time.

atush

If you aren't putting the money given to you for pension into a pension, you are paying BRTax on money that you needn't be. And you will, in the fullness of time regret it as you will be poorer in retirement than if you had paid into a pension.

If they should or not be doing what they are doing is a moral issue, and yes maybe you should be looking for anther employer.

but the contract you signed, with x for a pension would seem to make their plan 'legal'.

the question is, if they value you so little, should you be loyal to them?

CLAPTON

atush wrote: »

If you aren't putting the money given to you for pension into a pension, you are paying BRTax on money that you needn't be. And you will, in the fullness of time regret it as you will be poorer in retirement than if you had paid into a pension.

If they should or not be doing what they are doing is a moral issue, and yes maybe you should be looking for anther employer.

but the contract you signed, with x for a pension would seem to make their plan 'legal'.

the question is, if they value you so little, should you be loyal to them?

a bit bizarre

the OP is paid 14,000 without a pension

more flexible but certainly no worse than being paid 13,300 and 700 being paid into a pension fund by his employer

grey_gym_sock

employers can't reduce contractual salaries in order to pay for their forthcoming obligations to contribute to pensions. (though they can fail to increase salaries over the next few years in order to save up some money to cover the new pension contributions.)

i suspect you have a good argument that your contractual salary is in reality £14,000 now. and therefore that they can't arbitrarily reduce it to £13,333 later on. just a guess though - IANAL.

i think you have the right idea, that they aren't a good employer to stay with anyway!

allofushere

Yes, I feel a bit ripped off. My boss did seem a bit flustered when I questioned this recently, saying it was the same for him, as he'd had the 5% extra each month, however he was already employed with the company when it began and I bet the 5% was added to his already existing wage at the time, not included, so he has nt lost out. All employees since have been, according to him, given a competitive salary for the job plus 5%. Had I been called with a job offer from him and told my starting salary was actually £13.3k, I would not have accepted the job, as I was already on £14 k
I m very disappointed. It's seems everyone is out to rip you off these days.
But hey Ho, CV is now uploaded onto Jobsite. Their loss. Fingers crossed. :-)
Thanks for the help. X

Lokolo

It's not really ripping you off. You need to save for your retirement and that's what your contact says (that they pay you an additional 5% for you to put into your own pension).

You'll have to read what your contract says. It will be along the lines of "You will receive a salary of X. You will also be given an additional 5% to put into your own pension." but you will need to know exactly what it says.

grey_gym_sock

OP was told they'd get £14k, and they are getting £14k.

the rip-off is the plan to reduce the salary to £13,333 later on.

Lokolo

grey_gym_sock wrote: »

OP was told they'd get £14k, and they are getting £14k.

the rip-off is the plan to reduce the salary to £13,333 later on.

Doesn't matter what they were told, it's whats in the employment contract of the OP's employment.

The OP could having in their contract "We will pay you an annual salary of £13,340 and you will receive an additional 5% for you to put in a pension of your choice, making a total employment package of £14,000"

If that's the case then I don't see why the OP would have any reason to complain when the company do take 5% contribution.

allofushere

When I was offered the job I was told verbally that I would be on £14k. Only when I had left my other job and started the new one was I told it included the pension.
That's why I feel aggrieved. It was too late then to turn it down. I was willing to take £14k as a starting salary as I believed the new job had the possibility of moving up the pay scale but now in three years I will be back at square one. Unless I manage to get a substantial yearly pay rise, which I doubt.

dtaylor84

It's a bit tricky as you've just started. But it does sound like they are reducing your salary to pay for the contribution to the auto-enrolment pension, which is naughty.

How have they treated other employees? If someone doing your job was on 14k before, will they be on 14k+5% after auto-enrolment? Or were they on 13.3k?