Salary sacrifice - how contributions are calculated

jsj25

Hi guys,

Hoping that somebody might be able to help me with a query about how pension contributions are calculated.

The company that I work for operates a salary sacrifice scheme for pensions. When I joined, I requested that my contributions were upped to 8% (trying to pay as much in while I can afford to).

My current salary is £22k p.a. and by my calculations, and all the calculators that I’ve used on various websites, my monthly pension deduction should be £146.67 (ie. £22k / 12 * 0.08). However, at present the deduction is £106.43, and I can’t work out where this figure has come from.

I’ve tried raising this with the relevant person in the payroll dept, but she’s now out of office until next month and won’t be free to discuss anything until then. She did mention that tax relief had something to do with it, but my understanding was that salary sacrifice deducts contributions from your pre-tax pay, meaning no further tax relief is due.

Does anyone have any idea how the £106.43 figure might have been calculated? I don’t have much experience with pensions so am just trying to get a better understanding of the numbers. Payroll have got some some quite basic things wrong with my payslip before, so just wanted to make sure this isn’t another mistake.

Any insights you guys might be able to give would be much appreciated.

TrickyDicky101

How are you determining that the deduction is £106.43? Is that based on your old Payslip net wages less your new Payslip net wages?

Or is that shown as a specific pension contribution being deducted from your gross (ie pre-tax) salary?

jsj25

The latter; it's shown on the 'Deductions' section of my payslip along with the PAYE tax and NIC deductions.

xylophone

Read the information given to you concerning your pension and try this

http://www.legalandgeneral.com/workplacebenefits/employees/plan-for-your-future/salary-sacrifice/

lisyloo

I would expect the £146.67.
When did you ask for the pension to be upped?
Payroll set things up in advance so there could be a delay (usually mid-month they might have a deadline for expense/overtime).



It should be very simple if it's salary sacrifice.
No tax relief as tax is not paid.
No employees NI tax relief as it's not paid in the first place.
They might pass on employers NI tax relief (13.8%) either in full or in part.

jsj25

I'd had a play around with the L&G calculator before and, from what I can see, the calculations on there tally up with mine.

Plugged in 8% for my contribution and 2% for my employer's, and changed the 'Employer NI saving given up' field to 0 as they don't pass any of the savings on to me (more's the pity). The figures say what I expected, ie. that my annual contribution should be £1,760, which divided by 12 = £146.67. So, I'm still at a loss where the payslip figure comes from!

jsj25

lisyloo wrote: »

I would expect the £146.67.
When did you ask for the pension to be upped?
Payroll set things up in advance so there could be a delay (usually mid-month they might have a deadline for expense/overtime).

It should be very simple if it's salary sacrifice.
No tax relief as tax is not paid.
No employees NI tax relief as it's not paid in the first place.
They might pass on employers NI tax relief (13.8%) either in full or in part.

Thanks for this. I actually asked to contribute 8% as soon as I started back in November, and I was clearly told that this had been actioned. However, by December (ie. my first full month) HMRC had changed my tax code, and for a while after that I was getting various amounts of overtime pay, so I never took the time to actually sit down and work out if the deduction each month was correct.

The two most recent payslips have been the only payslips I've received on the 1185L tax code and where I received just my basic salary (ie. no overtime), which has made it easier to assess how their deductions compare to what I think they should be. They don't pass on any NI savings to me unfortunately, so I don't think that will come into play with the sums.

Glad to see I haven't got my maths spectacularly wrong with the £146.67 figure. I thought that there was something I might have been missing as I got looked at as if I was mad when I queried this!

Flying_Dodo

It's not unusual to find payroll departments messing up salary sacrifice. A common error I've seen in the past is to reduce a salary by the amount of the net of basic rate tax original employee contribution.

jsj25

Oh dear, I bet they've done something like that. You'd have thought it'd be easier calculating contributions before tax - didn't realise so many places had issues with it.

Guess it'll be an interesting conversation I'll be having with Payroll once my colleague's back. :lipsrseal

zagfles

They probably base on the same "qualifying earnings" as used for auto enrolment, so would be based on 22000-6032 =15968, 8% of which is £1277.44 ie £106.45 a month.

jsj25

zagfles wrote: »

They probably base on the same "qualifying earnings" as used for auto enrolment, so would be based on 22000-6032 =15968, 8% of which is £1277.44 ie £106.45 a month.

I think you've cracked it! That's amazing, thank you so much.

So what they've done is calculated my contribution as 8% of my qualifying earnings. Is that how salary sacrifice usually works? It was my understanding (perhaps mistaken) that whatever amount you elect to sacrifice automatically gets contributed, regardless of the qualifying earnings threshold.