NOW Pensions: bad news? Stay away?

Not_Me_Officer

You'll have to bear with me while I wrap my head around this one. I did a bit more reading & it sounds ok enough. Just a couple questions really...


1) Do I have to ask my employer for permission to 'go on' (is that even the correct term?) this salary sacrifice? Or can I just do it through the pensions portal?


2) I think I'd understand it better if someone could tell me in money terms. So for that i'll quote a recent payslip I have...


What I've read so far keeps referring to "some" NI contributions. 'Some' is quite vague. It says that you lower your take home pay - which is obviously something I need to keep my eye on.


I am a basic rate tax payer earning around the £19k-£20k per year mark & in this example I got the following...


£1,600.57 gross.


From that ...
£131.20 tax
£104.74 national insurance
£11.15 pension contribution
£44.58 voluntary pension contribution (4%)


Giving a take home in the pocket pay of £1,308.90.


Had I gone with this salary sacrifice thing, what would've changed & what would they have changed to?


I am thinking national insurance would've lowered and also my net pay. Would tax have lowered also?


The one I'm really interested in is what my net pay would've changed to.

bigadaj

Net pay will stay the same but you would have the NI saving going into your pension, so your pension contribution would increase probably by around £6-£7.

There are plenty of calculators on the net if you google, it's actually easier to use percentage figures for contributions and you haven't said your exact salary so the numbers will change marginally depending in what these are on a month by month basis.

Not_Me_Officer

I haven't told you my salary because I can't.
My better half could as they get the same each month regardless. Any overtime & they can take it back as early finishes.

I on the other hand - my basic would be around 14k-15k last time I worked it out, but our overtime is not an option, it's compulsory. We work around 50-60hr weeks. Some times during quiet time we may be allowed to finish early but this is unpaid. All this builds to end of the year earning around 19k-20k but that isn't set in stone. We touch somewhere around that region each year but it varies.

Not_Me_Officer

Also could I ask why you say my net pay would stay the same?

The websites I have read have advised to be aware that your take home pay would reduce so you may not be able to meet bills - mortgage repayments etc.

If your net pay remains the same though then surely it's a no brainer?

greenglide

Sorry bigadaj but if the pension contributions stay the same at £11.15 and £44.58 the net pay would go up.

The NI saving from salary sacrifice would be 12% of the pension contributions which, it this case, would be a saving of £6.69, the net pay would go up by that much.

Not a fortune but worth having.

I don't see how ticking a box on the pension providers website can implement salary sacrifice though. This needs a change on your employers payroll, this cannot be done by the pension company.

jamesd

When you start to make pension contributions that money is taken from your pay somehow. The warning about take home pay reducing is just a generic warning about this, not anything specific to salary sacrifice.

Not_Me_Officer

I best jump in sharpish as I think I must've explained it poorly...

There is no set amount of £11.15. That was just the figure that month which was my 1% contribution. It'll be 1% each month.

What was my £44.58 contribution will also change each month as this is set at 4%.

So the contributions do stay the same in terms of percentages but not in terms of set amounts in £.

bigadaj

Not_Me_Officer wrote: »

I best jump in sharpish as I think I must've explained it poorly...

There is no set amount of £11.15. That was just the figure that month which was my 1% contribution. It'll be 1% each month.

What was my £44.58 contribution will also change each month as this is set at 4%.

So the contributions do stay the same in terms of percentages but not in terms of set amounts in £.

Yes, definitely worth doing as you get more money and it doesn't cost your comoany any more, in fact they also save if they keep some or all of the employer savings.

The only issue is that it is a contractual agreement so you may be only able to change it once a year, or certainly at limited times, so long as you're happy with your pension arrangements the are no real drawbacks.

There were warnings about consequences, including the fact that your salary does reduce, so it would reduce that for say a
Mortgage application, but most places now seem to acknowledge that ss occurs and in any case affordability calculations have got more detailed.

Some places may only apply it on your basic or fixed salary though so that is worth checking, it may or may not be applied to bonuses, overtime etc

greenglide

... and it makes no difference what the exact values of the contributions are or that they are variable. Salary Sacrifice will save you 12% of the cost of the contributions on top of any tax relief etc.

But as I keep on pointing out it is odd, in the extreme, to have anything to do with salary sacrifice run by the pension provider, it should be the payroll provider / HR.

You say you are paying additional voluntary contributions. How did you set that up? The salary sacrifice would logically be the same people?

Not_Me_Officer

How did I set up voluntary contributions?

I went on to the NOW Pensions portal & where it says additional/voluntary contributions I selected 4%.

The payroll department (who also set this thing up for the employees) then called me in as they'd had this notice come through on their portal & wanted to check it wasn't a mistake.