Salary sacrifice?

Alexland

kidmugsy wrote: »

The Pru one worked for me just now, using the Safari browser.

xylophone wrote: »

No trouble getting it in Safari for me.

See you posh toffs using your fancy Apple products!

Alex

kidmugsy

Alexland wrote: »

See you posh toffs using your fancy Apple products!

I still miss those early Apple computers. They really were intuitive to use and their documentation was uncommonly well written.

Moving to a PC, as became inevitable in my job, was taking a big stride backwards in terms of the user experience.

It was the third time in my life I'd had to move backwards technologically on computers; I hated it more each time.

Paul_Herring

Anyway, what I want know, is salary sacrifice a good thing and how does it work?

Presuming you're actually being taxed (see comments about lower paid above) it works out the best due to savings in National Insurance.

Normally, without pension contributions, presuming you're a 20% tax payer, each subsequent £100 you earn is taxed:
- 20% Income tax
- 12% Employee's National insurance.

So you get £68 of that £100 into your bank account. (For a 40% payer, the numbers are 40% and 2% respectively on the slices that attract 40%.)

Additionally your employer must pay
- 13.8% Employer's National Insurance (even for those taxed at 40%)

Salary sacrifice is where you 'give up' salary such that the contributions don't attract those taxes since they're taken off before those calculations take place.

So if you sacrificed £100 salary, the whole of that £100 goes into your pension, your pay gross drops by the same £100, and your net pay drops by £68.

This is where the 'it costs £68 for £100 of contributions' comes from.

Some more enlightened companies will also add onto it their £13.80 saving of NI (since it's cost neutral to them) so you get £113.80 into your pension for £68 drop in net pay. Less enlightened ones will give you a proportion of it, the unenlightened ones will keep the lot.

Other schemes you may hear about around here:

- Net pay - similar to the above, in that it's deducted before the income tax is taken off, but after national insurance, so you don't get the benefit of 'claiming' the NI there

- Relief at source - here the money is all taxed initially, and you make payments out of your net pay/bank account. This attracts a rebate equivalent of 20% (i.e if you pay in £80, £20 is automatically added back when it hits the pension fund.) Again, NI is paid, and cannot be reclaimed. Those paying more than 20% income tax claim back the difference separately.

The former is less favourable to lower paid, since (as with salary sacrifice) if they're earning less than than the tax free allowance, the pay wouldn't be taxed to begin with, so there's no 'relief' to be obtained. The latter enables even those who are below the tax free allowance to still 'claim' the 20% rebate, even though it the pay wasn't taxed at 20% to begin with.

So would the salary sacrifice be set at say 5% (think this what it is in total now, 3% me and 2% employer) and can I pay extra in if I want to to.

Generally, yes. To both questions. Though it goes up to 5%+3%=8% in April '19.

Nasqueron

If you started a pension at 24, 14 years ago in 2004, that's way ahead of a great many people and those years of contributions should be ticking along nicely, if anything you started well...

xylophone

posh toffs

I'm Burlington Bertie....:rotfl:

I wouldn't willingly go back to a PC.

zagfles

Alexland wrote: »

See you posh toffs using your fancy Apple products!

The only Apple products in my house are Bulmers and Magners :beer:

cfw1994

kidmugsy wrote: »

I still miss those early Apple computers. They really were intuitive to use and their documentation was uncommonly well written.

Moving to a PC, as became inevitable in my job, was taking a big stride backwards in terms of the user experience.

It was the third time in my life I'd had to move backwards technologically on computers; I hated it more each time.

I often wonder why companies insist on things that need Windows.

Ours is the same: making some woefully feeble security claims and making several thousands of people's work harder to do: as you say, often a big step backwards, sadly

I'm clinging on to my Mac for as long as it can do the basics - there will come a time (soon!) when I have to use the Windows for some parts of my job, I am certain, but each time I power it on (to keep it logged into the domain!) I am reminded why I love my 2014 MBPr - peak Apple in terms of their products, even they have gone downhill more recently, I feel!

Anyway - sorry to OP for minor derail! Just to make amends:
SalSac is the best way to pay pension, and do try to raise the amount paid into to hit about half your age in % terms.....see MSE rule of thumb here
& I sometimes remind folk of this reddit flowchart on 'personal finance things' which I think is handy.

agent69

cfw1994 wrote: »

SalSac is the best way to pay pension, and do try to raise the amount paid into to hit about half your age in % terms

I'm a big fan of salary sacrifice, although it helps that I'm at an age where I can get at the money if needed.


My employer pays their NI saving into the pot, so when I was a higher rate tax payer for every £100 of take home pay I sacrificed about £200 was paid into my pension. At the 20% tax rate you still get about £170 into the pension.

planteria

this is an interesting thread..

i became an employee of a Plc, having been employee of my own company, last year. my salary has just been increased, and so on my next payslip it should show increases Eer and Eee contributions to my company pension. i was wondering about asking payroll to increase my contribution, but perhaps i ought to look at salary sacrifice instead.. are there implications re the state pension by opting for salary sacrifice?

MallyGirl

No implications for state pension. You cannot Sal sac below the national minimum wage.
You need to ask if your employer offers Sal Sac.
Possible downsides of Sal sac - depending on how your employer implements it - redundancy/life assurance payouts might be paid out on the basis of the reduced salary.