Simplifying salary sacrifice to 'dummies' level?

JustAnotherSaver

Salary Sacrifice is something my employer isn't interested in, however my wife's employer might be. She hasn't asked yet but I only loosely understand it and she'd need to have some sort of grasp of it to be able to suggest it to her employer to then consider.


My loose understanding of it is that if you're on this scheme (scheme may even be a wrong term already?) then through [some sort of calculation] you can end up with more in your pension pot AND more in your back pocket AND your employer can save money also, somehow. One of those things that sounds too good to be true.


Does anyone reading this know of a decent link that simplifies it enough without leaving anything important out and without packing it with a ton of jargon - so that she can print it off, hand it to her employer & say hey i'm interested in this, could you consider it?




* I've read it can affect maternity / mortgage applications - doesn't apply to us. We renewed our mortgage a couple month ago on a 5 year fixed.




I found this link: https://www.legalandgeneral.com/workplacebenefits/employees/plan-for-your-future/salary-sacrifice/ where you can throw in relevant numbers. Unlike myself my wife gets paid a salary. While the pence may fluctuate slightly, the pounds don't seem to.









Working off her last P60 gross earnings of £19000 (she's had a pay rise since which i think should put her at about £20k and her hourly rate is somewhere between £9.50-£10.00 IIRC.


Wife currently contributes 3%
Wife's employer contributes 2% (so basically the minimum, and they don't offer any sort of employee matching).


For the "Employer NI saving given up" i'm not really sure what this means totally so i don't really know what percentage to put in there. I've just thrown 20% in there now for no other reason than it was a number i plucked from the sky...


So through this "SMART" thing she earns approx £700 less per year, gets exactly the same net pay, the employer saves a bit on NI contribs & she pays £100 more in to her pension pot. If that 20% percentages goes to 100% (because like i said, i don't really understand what it is) then it's almost £200 extra in the pension pot, same in her back pocket on payday.




I'm not really seeing a downside to this (in her/our situation).



I don't know if the employer has to pay to set this up so that could be a reason for them to not do it & if this was the case then they may not make back what they've paid to set it up, but if they don't have to pay then as i just said - i don't see a downside for her/us.


It's just a question of having something simplified enough (and figures always help - like that calculator, so long as appropriate figures are put in) to be able to suggest it.


On a side note, why does putting a couple enter button spaces between lines when you're typing out your post get converted to about 100 enter button spaces when the post is well, posted?

Dazed_and_confused

My loose understanding of it is that if you're on this scheme (scheme may even be a wrong term already?) then through [some sort of calculation] you can end up with more in your pension pot AND more in your back pocket AND your employer can save money also, somehow. One of those things that sounds too good to be true.

Salary sacrifice is essentially an agreement to give up part of your wage and in return the employer contributes to your pension. So I'm not convinced you can always end up with the same take home pay, particularly for large sacrifices.

tacpot12

How about the Government's Guide to Salary Sacrifice for Employers at https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Paul_Herring

For the "Employer NI saving given up" i'm not really sure what this means totally so i don't really know what percentage to put in there.

For someone in the 20% income tax band, for every £100 earned in that band:

20% is income tax, 12% is employee's national insurance (these will be shown on the pay packet) AND the employer must contribute another 13.8% (not normally shown.)

So, for every extra £100 in that band of earnings, the employer must actually fork out £113.80, £100 to the employee (minus the tax of course,) and £13.80 to the taxman (in addition to collecting the other £32 from the employee's tax calc.)

It is this latter £13.80 per £100 that the bit I've quoted talks about; if that £100 is, instead, salary sacrificed, the employer no longer needs to stump up the associated £13.80, since it's no longer technically wages.

The most enlightened employers add that £13.80 to the salary sacrifice amount, putting £113.80 into the employee's pension fund for every £100 sacrificed, since it's revenue neutral for the employer (it doesn't cost them any extra to do it.)

Others only put a certain amount (half e.g.)

Less enlightened employers pocket the lot, and simply transfer the amount sacrificed.

The question you refer to is asking what, if any, amount the employer hands (over above the amount sacrificed) out of that £13.80.

BoxerfanUK

https://adviser.royallondon.com/globalassets/docs/shared/guides/ss7-a-guide-to-salary-exchange.pdf

JustAnotherSaver

Dazed_and_confused wrote: »

Salary sacrifice is essentially an agreement to give up part of your wage and in return the employer contributes to your pension. So I'm not convinced you can always end up with the same take home pay, particularly for large sacrifices.

I don't get it either but run the calculator in the link i provided with your own figures and see what it says? Maybe the calculator is a load of tosh, i don't know?




Thanks for the replies. Does this actually cost the employer anything to set up?
It'll cost them time i'm sure, especially if they've never heard of it before and are therefore suspicious of it and want to know more. They have an off site accountant (where i work we have our own on site department handling the pay) so i don't know if that would incur costs. All those things would maybe kick the idea in to touch.


Like i said though, from my understanding of it i can't actually see a negative side to it for us, only positive.

Paul_Herring

Thanks for the replies. Does this actually cost the employer anything to set up?

Admin and running costs.

Which is the excuse my employer uses for not adding any of their saved employer NI to the contribution.

Dazed_and_confused

I don't get it either but run the calculator in the link i provided with your own figures and see what it says? Maybe the calculator is a load of tosh, i don't know?

I think the problem is you are using an employer based calculator to consider the benefit for your wife, the employee

OUTPUTS BEFORE SALARY SACRIFICE AFTER SIMPLE SALARY SACRIFICE SMART
Salary £38,000.00 £36,100.00 £35,764.71
Adjusted PA £11,850.00 £11,850.00 £11,850.00
Employee tax £4,850.00 £4,850.00 £4,782.94
Employee NIC £3,549.12 £3,321.12 £3,280.88
Employer NIC £4,081.49 £3,819.29 £3,773.02
Net salary £27,700.88 £27,928.88 £27,700.88
Total pension contribution £3,800.00 £4,062.20 £4,443.76
Additional pension contribution using SMART £643.76

Brynsam

Try https://www.thisismoney.co.uk/money/pensions/article-6231663/My-employer-runs-salary-sacrifice-scheme-it.html

xylophone

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

Paul_Herring

Brynsam wrote: »

Try https://www.thisismoney.co.uk/money/pensions/article-6231663/My-employer-runs-salary-sacrifice-scheme-it.html

From the article:

At present, employers have to pay National Insurance Contributions at a rate of 13.8 per cent on wages between a floor of £162 per week and a ceiling of £892 per week.

It's not looking good when an ex-pension's minister is caught mis-stating the truth in an article relating to his former job. Employers have to pay that 13.8% on everything after that £162. It doesn't stop being 13.8% at that upper limit.