Salary Sacrifice good or not.

bhjm

Hi,

i received my annual Workplace Pension statement and wondered why no tax contribution was shown. Is this due to I opted for salary sacrifice scheme?

for the last year i contributed 10% and my employer contributed 10% as well. maybe worth noting that i am in my early 30s.

what do you guys recommend - should I continue this way or should go go for non sacrifice to receive 20% boost(normal tax range earner) on the amount i paid in.

or would i pay more tax & NI on the income than i would get then "topped up" for the pension contributions?

please let me know your thoughts or recommend what i should do. or if any questions, please ask !

Comms69

Sorry I'm confused what you mean by 'no tax contribution'?

jaybeetoo

If you contribute to your pension via salary sacrifice then your contributions are out of your pre-tax pay. You’ve already had your ‘tax contribution’.

Andy_L

As it is a workplace pension it is being paid out of your salary before it is taxed so there is no refund of tax.

bhjm

Comms69 wrote: »

Sorry I'm confused what you mean by 'no tax contribution'?

from my previous employment, i was enrolled with nest - and everything i put in, lets say 100£ - i got a tax relief of 20%

i cannot see this amount in my current workplace pension scheme.

bhjm

Andy_L wrote: »

As it is a workplace pension it is being paid out of your salary before it is taxed so there is no refund of tax.

ok ! that make sense - so for me, I am a bit dull today. If i would use non-sacrifice for my pension contributions, it the amount My employer and I put are putting towards the workplace pension would be taxed on my payslip with NI + Income Tax this would actually lower my payout salary and on the money i put towards the pension i would then get a 20% tax relief?

so basically i am better off with sacrifice. I just checked my payslip and my employer treats my salary as salary, and not the salary reduced by the pension contributions.

I hope i got it right now

Comms69

To keep it simple:


You get paid £1000, you sacrifice £100, you are taxed on £900.


Scale up as appropriate.

LilElvis

Speak to whoever administers your company scheme and ask them to explain it to you.

ReadingTim

In nearly all circumstances salary sacrifice is more "tax efficient" than not.
By tax efficient I mean you legally pay less tax than you would had you not sacrificed, therefore why wouldn't you?

It has occasionally got employers into trouble whereby the salary sacrifice for certain low-paid workers meant they received less than the national minimum wage as a result, but that's not really an issue for the OP I suspect.

The only question for the employee/OP is whether they believe that entirely legal tax avoidance measures such as salary sacrifice, or (for example) having an ISA is morally right, given they are avoiding paying tax, which is used to pay for schools, hospitals, unemployment benefits etc.

gettingtheresometime

I always thought there were 2 ways of paying into a pension and each way got treated differently tax wise.


Method 1 - the contribution is taken out out of the gross amount so in the example above gross salary is £1000 the contribution is £100 so you get taxed on £900. In this method no additional tax relief is given to the contribution as you've had it by paying less tax on your monthly salary.


Method 2 - the gross salary is £1000 and you get taxed on that amount. The amount you receive is less tax, NI & the £100 contribution.


In this case you would see a tax relief amount on your contribution in your pension account

p00hsticks

gettingtheresometime wrote: »

I always thought there were 2 ways of paying into a pension and each way got treated differently tax wise.


Method 1 - the contribution is taken out out of the gross amount so in the example above gross salary is £1000 the contribution is £100 so you get taxed on £900. In this method no additional tax relief is given to the contribution as you've had it by paying less tax on your monthly salary.


Method 2 - the gross salary is £1000 and you get taxed on that amount. The amount you receive is less tax, NI & the £100 contribution.


In this case you would see a tax relief amount on your contribution in your pension account

Isn't salary sacrifice Method 3 - you agree to reduce your salary from £1000 to £900, and in return your employer pays £100 into your pension ? There is no employee contribution/