Pension salary exchange - Auto Enrolment?

lucifersangel87

Hi,

Looking for a bit of advice on a new 'scheme' set up by my employer, which they are apparently auto-enrolling us all on.

The blurb says:

By changing the way pension contributions are made, eligible employees – who are enrolled into PSE – will make a saving on their NICs.

As a result of launching PSE, (name of Employer) will also pay lower NICs.

For eligible employees who pay NICs, the increase in take-home pay for eligible employees will be equal to the NICs that would otherwise have been made on an employee’s pension contribution.

PSE does not involve any changes to the overall level of contributions made to your pension or to your (name of Employer) pension benefits. It will also have no effect on other (name of Employer) benefits, such as overtime, bonuses and sick pay.

This all sounds a little bit dodgy to me, but i'm not sure what to make of it, what it is, or what to do. Any advice from the floor very much appreciated please?

Is it a good thing or a bad thing?

Lokolo

Looks like a typical salary sacrifice pension to me. You save yourself national insurance, so does your company. Win win situation.

mgdavid

agree, it's a.k.a. salary sacrifice, quite normal for switched-on employers as it is win-win.

p00hsticks

There are a few downsides I think, although they may be slight and/or not relevant to you.

The company are basically saying they will pay your pension contributions completely separately from paying you (rather than paying you and taking part of the pension payments from your salary).

As Lokolo and mgdavid say, in terms of paying less NI this is a win-win for you and the employer.

However, although your net salary will stay the same (or possibly even go up if the company are gonig to pass on the NI savings to you), your gross salary will be reduced.

So when they say " It will also have no effect on other (name of Employer) benefits, such as overtime, bonuses and sick pay." - aks what the impact on any redundancy pay will be - as this is based on gross salary, chances are it will be slightly reduced.

You may also find yourself having to declare a lower gross salary on things liek mortgage and credit card applciaitons.

dunstonh

This all sounds a little bit dodgy to me

Not me. it sounds like your standard salary sacrifice method (which has been around for over 20 years).

jamesd

Just salary sacrifice, a good idea. what the company appears not to be telling employees is:

Basic rate income, employee saves 12%, company saves 13.8%
Higher rate income, employee saves 2%, company saves 13.8%

Since the company gets a larger benefit than the employees and to encourage higher pension contributions that will benefit both it's common for firms to pay half or all of their saved NI into the pensions of the employees. This is a particularly significant issue for higher rate tax payers who have only a 2% incentive to use the company scheme rather than a personal one if there is no sharing.

It's not strictly basic or higher rate income, it's just the current practice to set the NI thresholds at the point where the tax rate changes.

xylophone

See http://www.icalculator.info/terminology/salary_sacrifice.html


http://www.pruadviser.co.uk/content/knowledge/technical-centre/salary_sacrifice_planning/

http://www.rhhr.com/salary-sacrifice-and-pensions-contributions-during-statutory-provisions/

mgdavid

p00hsticks wrote: »

..........
However, although your net salary will stay the same (or possibly even go up if the company are gonig to pass on the NI savings to you), your gross salary will be reduced.

So when they say " It will also have no effect on other (name of Employer) benefits, such as overtime, bonuses and sick pay." - aks what the impact on any redundancy pay will be - as this is based on gross salary, chances are it will be slightly reduced......

disagree; in my experience redundancy is based on Contracted Salary which is the amount agreed before Salary Sacrifice is taken into account.
For things like loan and mortgage appications you may have the minor inconvenience of obtaining a letter stating your current Contracted salary from your HR or payroll people, although a copy of your latest annual salary review letter may suffice.

jamesd

Salary sacrifice changes the contracted pay. What is needed is a statement of pre-sacrifice or base pay.

There's a difference in redundancy and statutory maternity pay between what the law requires - only contracted pay - and what the firm's contracts say, which would be the pre-sacrifice pay.