Salary Sacrifice, Pension, Tax Rate Question

Thmas_Covenant

I get a 5% + 5% pension with my new employer. I am just in the top rate of tax at £45k. I have been offered the option to pay my 5% and they pay their 5% pension, OR they pay a slightly higher amount to my pension and me a reduced salary of £42,672. The net effect is that I take home exactly the same, they pay out exactly the same and my pension pot gets an extra £400 per year.
Seems a no brainer to me, but are there any disadvantages that I haven't thought of?

atush

Not that I know of, Salary sacrifice saves both you and your company NICs, and the best companies offer some of that savings to you.

I had heard your salary can actually go up as you aren't paying Nics on the pension bit you pay?

GhIFA

atush wrote: »

Not that I know of, Salary sacrifice saves both you and your company NICs, and the best companies offer some of that savings to you.

I had heard your salary can actually go up as you aren't paying Nics on the pension bit you pay?

Take home salary will be higher on Salary Sacrifice than if without (i.e paying net contributions out of net salary), due to the NI not being paid on the amount of salary given up. Some employers will allow member to add this saving into the pension contribution to enhance it further.

mania112

Common Sense Stuff:

Make sure you have it in writing that your salary is actually 105%.

Make sure death in service and any other benefit are based on the original amount.

Be aware for loans/mortgages (or whatever else) you are earning less in the eyes of the creditor.

Those on low salary's could be affected by some state benefits - not for you to worry about.

At the end of the day, you'll take home more money because you won't be paying National Insurance on the amount paid into the pension by this method. That's usually the highlight for most people. Some could consider that immoral, and some think salary sacrifice won't be available for too much longer. But I personally think it's a great idea.

AlwaysLearnin

As an aside, if your company has AVC facilities too then £100 a month would basically get you down the 40% threshhold, costing you only £60 (poss less) from take home.