Smart Pensions - Good Deal?

anotheruser

My workplace has come out encouraging people to switch to the Smart Pension system.

It says:

Smart Pensions will increase your take home pay.

[They] alter the way in which you participate in your pension. Rather than you personally making the paymentd, which incurs a Natiopnal Insurance payment, [my employer] will pay instead.

Currently, you only receive tax relief on your pension contribution as you personally make the pension contributions, together with a national insurane payment. However as [my employer] will now make the payment, you receive both tax and NI relief, resulting in an increase to your take home pay.

I'm a bit confused.
So is this correct:

Employer pays me £100.
I pay £10 for pension, and £3 tax, making the pension deduction £13.
I get £97 in take home pay.

So I guess if the employer pays direct then there is no tax for me to pay?

Thanks

jamesd

Smart pensions are a way of saying salary sacrifice but which sounds nicer than sacrifice. They are an excellent idea for both employer and employees except employees who are on such low pay that their income is already tax free and some other special cases.

These schemes start out with the employer making the contribution instead of paying the money in pay. No pay, so no income tax, employee or employer NI. There are two ways that these systems work. One way keeps the take home pay the same and the pension contribution increases by the value of the saved employee NI and any part of the saved employer NI that they share. The other way keeps the pension contribution the same and increases the take home pay.

Your employer seems to be planning to use the second type.

anotheruser

Thanks

Why my employer couldn't simply explain it like that I don't know!