Salary sacrifice worth it?

Legacy_user

I could pay pension 2 from salary sacrifice to save NI, which is a nontrivial amount to me

However-
- need to renew mortgage deal in 4 1/2 years (maybe contributions to pension 2 have already !!!!!!ed that up but I would've thought salary sacrifice definitely would) - and if anything I'd like to borrow more to leverage my shares
- pension 1 (dB) will be worse (including life cover) while the salary sacrifice runs but perk up after - although what I save in NI could buy life insurance...
- employer won't increase their contributions
- minimum wage means I can't do it all through salary sacrifice

Would you do it? NI in the pocket seems attractive but lost leveraging ability and inability to switch mortgage could cost more than that

Marine_life

If you are worried that the salary sacrifice would impact on your ability to leverage then you are probably over leveraged.

bowlhead99

Leverage amplifies gains and losses. An arrangement to save NI via salary sacrifice at your level of income gives an instant guaranteed zero risk boost to your investment pot of over 10% of what you put into it using that scheme. So the amount you have invested and compounding up into the future gets a good kick without you needing to borrow to do it.

While it's tempting to grab the free money and put the cash in your pension pot instead of HMRC's coffers, the most relevant question is maybe what it will do to your loan-to-value ratio when it's time to get a new deal.

Generalising, historically if you're already below 50-60% LTV there is not a great difference in mortgage rates (well, not as much as if you have 60-100% LTV), and if you have the opportunity to get over 10% free NI saving on the sal sacrificed, it's a great deal. However, if putting say £10k into a pension means you can only afford to be in an 85% LTV remortgage band instead of a 75% mortgage band, you could be paying an extra percent of interest on the entire amount of your mortgage for several years, so the cost is not just measured by the return made or interest saved on the £10k itself.

joe134

you do know salary sacrifice is under review, with the result of it being abolished by hmrc next april.

System

All good points, straying into higher LTV wouldnt be done lightly because of the effect on whole mortgage, as you say

What worries me is not being able to borrow my current mortgage and even switching to a cheaper deal, as I set up pension 2 afterwards, but I suppse a broker would know who looks better on it. Am i right in thinking they see salary sacrifice as less discretionary than my current standing order?

If they are abolishing it next year part of me wonders if its worth the hastle, but its easier money than work even for that period of time. Perhaps salary sacrifice up till 3 months before remortgage (if it exists that long), then completely halt pension 2 contributions, and restart afer

System

Only 1 bank was willing to lend me current mortgage lol, low earner with child is an unattractive customer
Hoping theyll look favourably on being able to access pension 2 within the term if necessary

adonis10

Is it being completely abolished?

xylophone

https://www.pensionplaypen.com/top-thinking/show/395/pension-salary-sacrifice-is-it-worth-it.html#.V8ao95MrJ8c

may be of interest.

bowlhead99

adonis10 wrote: »

Is it being completely abolished?

The post from joe134 was clearly made without actually reading any of the documentation that HMRC has put out on the subject.

They started a public consultation process earlier this month, running to October on "limiting the range of benefits in kind (bik) that attract income tax and national insurance contributions advantages when they are provided as part of salary sacrifice and flexible benefit arrangements".

They explicitly excluded the type of sacrifice arrangement that OP is considering (ie to make pension contributions) from the scope of the review.

" employer pension contributions, employer-provided pension advice, employer-supported childcare and provision of workplace nurseries and cycles and cyclists' safety equipment provided under the cycle to work scheme remain UNAFFECTED by this measure."

kidmugsy

MatthewAinsworth wrote: »

if anything I'd like to borrow more to leverage my shares

How courageous, Minister.

System

Kidmugsy - not much different than buying property, just that shares are a better performing asset long term, done right