Salary Sacrifice - Too good to be true?

6022tivo

Just had the confirmation from HR
All sorted and they are making additional contributions for 13.8% of the drop in salary into my pot, which I guess is the 10% employer contribution pension they give me + the NI saving?

kidmugsy

Mogley wrote: »

for my three children. Win Win .

Surely "win, win, win"?

Novice_investor101

I bumped up my salary sacrifice to 8% of my salary (& my employer pays in 14%) when I got my last payrise. I figured I wouldn't miss the extra money I've managed to live without so far & it, along with a salary sacrifice share save scheme & a health benefit, took me under the threshold for paying back student loans.
I figured I'd lose the money as student loan repayments anyway & this way I get to keep it, it's just locked away for my older self in retirement.

aroominyork

There are some astonishing stories here. Employers paying in 14%. Employers paying in the NI they save. Where do we get these jobs?!

Salary sacrifice is a loophole that needs closing. Either all workplace pension contributions should be exempt from NI or none should.

But beware of the downsides of salary sacrifice. It means your gross salary is lower which could disadvantage you in several situations:

- you want a mortgage and as a multiple of your salary you are offered a lower amount
- your pay rise as a percentage of your gross salary is lower
- your negotiating position for a new job, based on your current salary, is weaker
- your redundancy payments are lower.

Lomcevak

I don't know about the last point, but

- your pay rise as a percentage of your gross salary is lower
- your negotiating position for a new job, based on your current salary, is weaker

both of these are based on the pre-salary-sacrifice amount, so you aren't disadvantaged.

Mortgage payments are based on the net (take-home) income, so you could possibly be disadvantaged. However, my mortgage company were happy to work out affordability based on total salary (before salary sacrifice), on the basis that I could freely cut back my salary sacrifice contributions if I needed to.

NI is fairly standard, both my current and previous companies did it. For a while my previous company even let me pay for lunch via salary sacrifice, but they eventually got told to stop it

aroominyork

Lomcevak wrote: »

both of these are based on the pre-salary-sacrifice amount, so you aren't disadvantaged.

How do you figure that? Your potential new employer asks what your current salary is. If you have agreed salary sacrifice it is lower, full stop. Maybe you can negotiate based on your current employer's higher pension contributions just as you can negotiate on any other benefit they are giving you such as season ticket loan, health insurance etc., but your gross salary is what it is, which is lower than if you had not taken salary sacrifice.

Lomcevak

How do you figure that? Your potential new employer asks what your current salary is. If you have agreed salary sacrifice it is lower, full stop.

It really isn't - I have a payslip with my gross salary on it, it then lists the salary sacrifice deductions, so I can prove what my total gross salary is if I need to. I haven't taken a pay cut, i'm just making contributions to certain things from pre-tax salary.

kangoora

aroominyork wrote: »

How do you figure that? Your potential new employer asks what your current salary is. If you have agreed salary sacrifice it is lower, full stop. Maybe you can negotiate based on your current employer's higher pension contributions just as you can negotiate on any other benefit they are giving you such as season ticket loan, health insurance etc., but your gross salary is what it is, which is lower than if you had not taken salary sacrifice.

In this instance you tell your potential new employer what your salary is un-adjusted for salary sacrifice.

It's a perfectly true statement as you *could* stop salary sacrifice at any time and recover your full wage.

Your previous company would never divulge your compensation package to any possible competitor (presumably you are staying in the same work arena). The only way I think you could be caught out is if someone in accounts noticed your taxation would be in a lower band than expected - but why would they ever look and compare that?

A long time ago now I had something similar work in my favour. I changed jobs and told my potential new employer I was on £24k but 'sensible overtime' was included in that (I'd recently gone from £19k +OT to £24k without any OT payable). My new firm offered me £27k + OT, so either they really wanted me or it had gone in one ear and out of the other so they had me noted down at £24k as 'previous' salary and just offered a nice 10% raise - it was actually about a 33% rise in the first year due to overtime

greenglide

As others have said you state the reference salary which should be used by the employer in all circumstances.

My employer certainly did this and it applied to redundancy payments as well.

Shame that they didn't share the employers NI saving though.

camelopardis

Just a little story that may be of interest to some:

I took early retirement a couple of years ago from a large UK blue chip company with a final salary scheme. During the final year of my employment I entered into a salary sacrifice scheme where I paid nearly all my salary into AVCs. This saved me a huge amount in tax and NI.

Nearly a year after accepting an early leavers payment, I got a letter out of the blue from my old employer. It transpired that my contributions had reduced my salary below minimum wage and they were therefore legally obliged to send me a cheque - for thousands of pounds! Even though I'd already had the money paid as AVCs into my pension.

This may be of use to someone