Salary Sacrifice and Auto-enrollment

salsac50

Hello,

I hope someone knowledgeable can help.

I contribute into an existing pension using salary sacrifice. My employer makes no contribution to this.

Last month my employer also auto-enrolled me into an L&G pension scheme with employee and employer each paying 3%. When I got paid I noticed that they are basing their contribution on my post-sacrifice salary not my pre-sacrifice salary. I queried this and was informed that this is a legal requirement (see quote below).

My question is, is using post-sacrifice the rule for salary-sacrifice pension contributions using auto-enrolment or an L&G rule or just my employer using whats most favourable to them. I couldn't find anything definitive on the Web. Is it possible for me to query the Pensions Regulator directly to check?

Quote from my employer to my query:

" - It is absolutely clear to everyone (and confirmed by the Pension Regulator that we have consulted again) that any contributions, in this country and in the current legislation, will have to be based on the remaining salary after the sacrifice.

- Your reference salary for this scheme will be the after sacrifice amount and our 3% based on this.

- The reasoning of the regulator is also logical: the spirit is to contribute a % of a base salary and if some part of this very base salary is going already into the pension, the contribution is based on the rest, otherwise there would be a double contribution

- As long as the minimum requirements are met for contributions (by EMPLOYER) you are able to pay more into the scheme if you wish to do so, and this could be advantageous of course "

End quote

zagfles

I don't know for certain but as it's govt rules it's surely going to be based on the salary the govt uses for tax and NI, ie the salary after sacrifice. By sacrificing your salary you are asking the govt to treat you as if you didn't earn that salary. The same applies to salary related NI benefits (the few that are left).

If you want the legislation to treat your sacrificed income as employment income, then you could stop the sal sac and pay into a private pension. You then wouldn't save NI on the contribution, but you can't really have it both ways, the legislation should either treat you as having earned that salary or not having earned it.

Of course that's from the govt's point of view. The argument with your employer is different, they are not only saving employer's NI but also saving on the auto-enrollment conts. It's an argument for them increasing their contributions to your pension with what they save. Something to negotiate with them, perhaps through your union.

mania112

It's not a legal requirement, but acceptable under the rules. The employer has found a way to pay less. They're not required to pay on post-salary sacrifice money, but they can.

Curious then that they're paying 3% matching your 3% when the current minimum is 1 and 1 and the final is usually 8% total (min 3% from employer).

Here's an excerpt from the Pension Regulator guidance on the matter:

If the employer is using a DC scheme then the
qualifying earnings used to meet the minimum
requirement are the post-sacrifice level of salary.

Furthermore your employer makes the argument about 'double contribution' but they aren't paying your salary sacrifice contributions (if I read that correctly) so they're the one's making a double saving - less NI on your behalf and a lower pension contribution into the new scheme.

salsac50

Thank you for your replies. I believe that my employer want to follow best practice and offer flexibility regarding auto-enrollment by offering salary-sacrifice and a higher contribution level. They are using a Pensions advisor who has selected the scheme and is advising them on what they can do.

I will ask my employer if they want to be more generous and use a pre-sacrifice basis for contributions since it appears that a post-sacrifice basis is the minimum contribution they need to make not the maximum they can make.

Thrugelmir

Salary sacrifice is technically a change in your contractual terms of employment. Has to be be to accord with HMRC guidelines on salary sacrifice schemes being acceptable. Your employer appears to be acting correctly with regards to the implementation of auto enrollment.

You can't have your cake and eat it.

Marktheshark

Did they tell you what they were enrolling you in to ?
Does it state in writing what you pay in and what you will get out ?

I would have thought that is very important, you pa xx in and you will get xx out.
Without this simple information I would opt straight out, crooks, liars and thieves run pensions.

mania112

Thrugelmir wrote: »

You can't have your cake and eat it.

How is he (or she)?

If i'm paid £45,000 but request payment of £40,000 and £5,000 direct to my pension - that's a benefit for me and my employer. My employer is not currently paying anything toward my pension.

Then Auto-Enrolment starts and my employer decides to only contribute against the £40,000.

Seems completely unfair to me?

zagfles

mania112 wrote: »

How is he (or she)?

If i'm paid £45,000 but request payment of £40,000 and £5,000 direct to my pension - that's a benefit for me and my employer. My employer is not currently paying anything toward my pension.

Then Auto-Enrolment starts and my employer decides to only contribute against the £40,000.

Seems completely unfair to me?

Yes, so the OP should take this unfairness up with his/her employer, ie negotiate a better deal.

What the OP can't do is expect the legislation concerning auto enrollment to come to his aid, when he has made an arrangement to lower his salary resulting in NI being charged on a lower salary. As far as the govt are concerned, his salary is £40k not £45k and so the legislation for things such as tax, NI, auto enrollment etc would apply to a salary of £40k.

barvid

As Thrugelmir said, salary sacrifice contractually changes your salary. It's not a deduction from salary, it's a reduction to salary. If I earn £100k and contribute 10% to pension via salary sacrifice, I now earn £90k. That is my new salary. I do not earn £100k any more. I earn £90k and have higher pension contributions as well.

SOMETIMES other benefits MAY be based on your pre-sacrifice salary (often referred to as a notional or reference salary), but there is no obligation for anyone - whether it's your employer or a third-party - to use this higher figure.

FatherAbraham

Marktheshark wrote: »

We survived Two world wars and the Blitz

You're double-counting.

You can't have your cake and eat it.

Warmest regards,
FA

mania112

zagfles wrote: »

Yes, so the OP should take this unfairness up with his/her employer, ie negotiate a better deal.

What the OP can't do is expect the legislation concerning auto enrollment to come to his aid, when he has made an arrangement to lower his salary resulting in NI being charged on a lower salary. As far as the govt are concerned, his salary is £40k not £45k and so the legislation for things such as tax, NI, auto enrollment etc would apply to a salary of £40k.

Yeah but what I have a problem with is the company saying their hands are tied because the of rules.