To salary sacrifice or to not salary sacrifice...

mania112

Andyed201 wrote: »

1. The second question related to future pay. If I earn 60k, do 10% salary sacrifice, I get 54k. Then if I get 10% pay increase, I go to 59.4k, but if I had been on the 60k I would have gone to 66k, so the gap grows. With a long career left, that gap would keep growing. I was trying to work out if that was something I should consider?

Is that definitely the case? That refers back to my point about death in service and insurance.

A client who's paperwork I was sent about a Salary Sacrifice offer said they use your original salary as a 'placemarker' for things like that.

So when you get your next salary review they'll be reviewing £60k, not £54k (as per your example).

Either way, all roads point to going ahead.

GhIFA

Andyed201 wrote: »

Thanks everyone.

Just to reply to a few things/clarify a few things;
1. The second question related to future pay. If I earn 60k, do 10% salary sacrifice, I get 54k. Then if I get 10% pay increase, I go to 59.4k, but if I had been on the 60k I would have gone to 66k, so the gap grows.

It doesn't work like that - as far as your employer is concerned your salary is £60k reduced by the salary sacrifice. When reviewing salary they will work from the original £60k, so a 10% increase will see a new salary of £66k which will then be reduced to £59,400 with the salary sacrifice.

somethingcorporate

As the previous two posters confirm, I SS into my pension and any communication from my company in regards to salary (either pay increase or bonus) always refer to my pre-SS salary.

[Deleted User]

Hopping on to the discussion about salary sacrifice: let's say hypothetically my salary is £100,000 and I do salary sacrifice and all my official employment documentation quotes my salary as £100,000. I saw a mention of mortgages above, how do I deal with mortgage applications, credit checks etc? This hypothetical example means there is no "official" recording of my post-ss salary, would I need to be calculating my own salary and explaining to any potential lender?

Salary sacrifice isn't (from what my pension advisor told me) a permanent choice, someone could agree to salary sacrifice and then opt-out at a later date, wouldn't this choice be irrelevant to a lender because it could be the same as also renting a property or another recurring outgoing? Wouldn't pension contributions also matter in that situation, or do lenders also require knowledge of the pension contributions a client makes?

The more I think about it the more quoting after salary sacrifice exchange salary to lenders makes no sense because what about pension contributions themselves? Let's stick with the £100,000 example, if my pension contributions are £1000 per month that would reduce the yearly take home pay by £12000, on top of the salary sacrifice reduction (~£10k) that would make take home pay £78000 so do I quote that to lenders? If that's the case wouldn't someone have an incentive to stop their pension contributions when applying for a mortgage (if getting the highest loan possible matters)?

GhIFA

citricsquid wrote: »

Hopping on to the discussion about salary sacrifice: let's say hypothetically my salary is £100,000 and I do salary sacrifice and all my official employment documentation quotes my salary as £100,000. I saw a mention of mortgages above, how do I deal with mortgage applications, credit checks etc? This hypothetical example means there is no "official" recording of my post-ss salary, would I need to be calculating my own salary and explaining to any potential lender?

Salary sacrifice isn't (from what my pension advisor told me) a permanent choice, someone could agree to salary sacrifice and then opt-out at a later date, wouldn't this choice be irrelevant to a lender because it could be the same as also renting a property or another recurring outgoing? Wouldn't pension contributions also matter in that situation, or do lenders also require knowledge of the pension contributions a client makes?

The more I think about it the more quoting after salary sacrifice exchange salary to lenders makes no sense because what about pension contributions themselves? Let's stick with the £100,000 example, if my pension contributions are £1000 per month that would reduce the yearly take home pay by £12000, on top of the salary sacrifice reduction (~£10k) that would make take home pay £78000 so do I quote that to lenders? If that's the case wouldn't someone have an incentive to stop their pension contributions when applying for a mortgage (if getting the highest loan possible matters)?

There's no hard and fast rules on this one, however, in my experience the vast majority of employers will quote the "notional" salary (i.e the salary before sacrifice) in any reference they're asked to give, so there shouldn't be a problem using this one.

mgdavid

GhIFA wrote: »

There's no hard and fast rules on this one, however, in my experience the vast majority of employers will quote the "notional" salary (i.e the salary before sacrifice) in any reference they're asked to give, so there shouldn't be a problem using this one.

agreed, and OK unless the mortgage application needs payslips or P60s to support it, then the after-SS figure will be apparent, so maybe better to be open and honest, declare both figures maybe?

ic

mgdavid wrote: »

agreed, and OK unless the mortgage application needs payslips or P60s to support it, then the after-SS figure will be apparent, so maybe better to be open and honest, declare both figures maybe?

I've just recently started a new job and signed up to salary sacrifice. I specifically asked my pensions advisor about how this would affect redundancy, other benefits of mortgage applications. I was told that nothing would be affected and everything would be based on the higher figure. He said mortgage companies fully understand how salary sacrifice works and shouldn't count it against you - after all they're normally more interested in how much you have left after all bills are paid, rather than before.

nearlyrich

bilbo51 wrote: »

Your pensionable salary is usually the gross amount of your basic salary. ie it doesn't include bonuses, on-call allowances, overtime etc...

Not necessarily we get 50% of our total potential bonus added to our salary before they work out their contribution, for the OP I don't think you can lose with salary sacrifice

bilbo51

nearlyrich wrote: »

Not necessarily we get 50% of our total potential bonus added to our salary before they work out their contribution, for the OP I don't think you can lose with salary sacrifice

That's why I said "usually".