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Smart Pension

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youngy31
youngy31 Posts: 7 Forumite
in Pensions, annuities & retirement planning
My company is introducing a smart pension scheme. Were as it will reduce your salary by your pension contribution stating that net pay should be increased. Has any one else any experience of this. And do you think it is a good idea.




Thanks


Youngy31
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  • jem16
    jem16 Posts: 19,404 Forumite
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    youngy31 wrote: »
    My company is introducing a smart pension scheme. Were as it will reduce your salary by your pension contribution stating that net pay should be increased. Has any one else any experience of this. And do you think it is a good idea.




    Thanks


    Youngy31

    Basically another name for a salary sacrifice scheme.

    It is a good idea providing you are also saving the NI of 12%. You may also get some of your employer's NI savings. Do you know if this is the case?
  • atush
    atush Posts: 18,730 Forumite
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    Yes. salary sacrifice is a good idea- more tax saved for you.
  • robin61
    robin61 Posts: 677 Forumite
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    Another possible advantage depending on your circumstances if you are earning over £50k and it takes your gross pay under that amount it means you keep any child benefit you might be getting in full.
  • jem16
    jem16 Posts: 19,404 Forumite
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    robin61 wrote: »
    Another possible advantage depending on your circumstances if you are earning over £50k and it takes your gross pay under that amount it means you keep any child benefit you might be getting in full.

    You can do that with any pension contribution.

    The only advantage that salary sacrifice has over net or gross pension contributions is the NI saving.
  • Your_Hero
    Your_Hero Posts: 883 Forumite
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    youngy31 wrote: »
    My company is introducing a smart pension scheme. Were as it will reduce your salary by your pension contribution stating that net pay should be increased. Has any one else any experience of this. And do you think it is a good idea.

    Thanks

    Youngy31
    Most likely to be a good idea unless you are earning close to or less than the personal allowance (£10,000) where the salary sacrifice would have no tax advantages and possibly put you in a worse position. E.g. If below £7,956 p.a. (primary threshold) there would be no NIC savings at all, and if below £5,772 (LEL) you would stop accruing class 1 NIC totally.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • robin61
    robin61 Posts: 677 Forumite
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    jem16 wrote: »
    You can do that with any pension contribution.

    The only advantage that salary sacrifice has over net or gross pension contributions is the NI saving.
    Agreed providing the scheme allows you to contribute more. My DB scheme doesn't and the AVC is the only option.
  • jem16
    jem16 Posts: 19,404 Forumite
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    edited 5 October 2014 at 10:56AM
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    robin61 wrote: »
    Agreed providing the scheme allows you to contribute more. My DB scheme doesn't and the AVC is the only option.

    Then contribute to a different pension such as a PP or SIPP.

    AVCs are a very poor option nowadays unless they allow the AVC pot to fund the tax free lump sum or the AVC also is part of the salary sacrifice scheme. They are certainly not the only option if you have a DB pension.
  • robin61
    robin61 Posts: 677 Forumite
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    jem16 wrote: »
    Then contribute to a different pension such as a PP or SIPP.

    AVCs are a very poor option nowadays unless they allow the AVC pot to fund the tax free lump sum or the AVC also is part of the salary sacrifice scheme. They are certainly not the only option if you have a DB pension.

    Yes I agree that's why I asked if the AVC option linked to the main pension scheme had been investigated. Mine does all of the above as well as a good NI saving it's a great option for me and maybe for them ?
  • jem16
    jem16 Posts: 19,404 Forumite
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    robin61 wrote: »
    Yes I agree that's why I asked if the AVC option linked to the main pension scheme had been investigated. Mine does all of the above as well as a good NI saving it's a great option for me and maybe for them ?

    So keeping Child Benefit is not actually an advantage of a Salary Sacrifice scheme as you said earlier?

    The NI benefit from reducing your salary to below £50k should only be 2%. This is not such a good benefit as the 12% saving from those earning less.
  • robin61
    robin61 Posts: 677 Forumite
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    jem16 wrote: »
    So keeping Child Benefit is not actually an advantage of a Salary Sacrifice scheme as you said earlier?

    The NI benefit from reducing your salary to below £50k should only be 2%. This is not such a good benefit as the 12% saving from those earning less.


    No. It worked well for me. I get 40% tax relief and I get 12% NI relief I only expected to get 2% but I assume my company must be sharing their relief with me. I have proved this as I have gradually increased my contribution and seen substantially more than 2% NI relief. Plus I have managed to easily keep my child benefit as I am putting a substantial amount into the AVC reducing the gross pay on my P60.
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