Which is the better option for paying into a company pension?

conradmum

My husband has just started a new job that has a company pension scheme. The company matches his contributions up to 5% of hs salary.
He's been asked to choose which of two ways he can pay into the pension. The options are "net pay" and "salary sacrifice".

The help info says "net pay - deducted from your pay after rax and NI
have already been deducted, meaning the cost is identical to the pamount
contributed to the pension".

"SS - if elegible, your contributions will be paid under a salary
exchange agreement where you reduce your gross salary before tax + NI.
Company Name make the contribution on your behalf in exchange. The advantage
to you is the amount of NI is reduced and Company name reduce the amount of NI
they contribute too." (Paraphrased it slightly).

Not sure which to choose. If it makes any difference, he's 53 and has a small private pension he hasn't paid into for 15 years or longer.

Marcon

Salary sacrifice will give him an NI saving. No reason not to go that route if the company offers it.

MEM62

Salary sacrifice is the best option. That was you get the NI saving as well as the tax advantages. If the employer is anywhere near generous they will contribute some of their NI saving as well.

Dazed_and_confused

Salary sacrifice has the advantage of paying less national insurance (assuming he earns enough to pay it on the first place).

One important thing to remember with salary sacrifice is that your husband won't be contributing to the pension. It is the employer who contributes. So there is no pension tax relief available to your husband.

The tax savings he gets comes in the form of having a lower salary which needs to have tax/NIC deducted in the first place.

conradmum

I forgot to mention that he plans on putting all his salary he receives at the higher rate of tax into a private pension, after consulting an IFA. Not sure if that makes a difference.

Dazed_and_confused

Did your husband make the IFA aware of the salary sacrifice option?

Or is he going to still be paying higher rate tax after paying into the company pension.

cloud_dog

conradmum wrote: »

I forgot to mention that he plans on putting all his salary he receives at the higher rate of tax into a private pension, after consulting an IFA. Not sure if that makes a difference.

Best way will to do it via SS in to the company scheme (assuming they allow him to put more than the standard in; obviously they will not match the higher level).

conradmum

Dazed_and_confused wrote: »

Did your husband make the IFA aware of the salary sacrifice option?

Or is he going to still be paying higher rate tax after paying into the company pension.

He hasn't spoken to an IFA yet but some of his salary will still be in the higher rate tax band after his company pension contribution is taken out.

conradmum

cloud_dog wrote: »

Best way will to do it via SS in to the company scheme (assuming they allow him to put more than the standard in; obviously they will not match the higher level).

I'm not sure if they allow him to contribute more than what they will match. So it makes sense to contribute his entire salary that falls into the higher rate tax band? I wasn't sure if it would be better to also have a separate pension of his own. I don't know the performance of the company's pension scheme. Maybe an IFA would be able to offer a pension scheme that's likely to perform better?

MallyGirl

I sal sac enough to keep me in basic rate tax bracket - sadly my company don't pass on their employer NI savings but my husband's does so it varies.
Performance of any pension depends on the funds you choose - pension is just a wrapper. Don't assume that a private product will be better - especially if there are IFA fees to take out of the growth.

Prism

conradmum wrote: »

I don't know the performance of the company's pension scheme. Maybe an IFA would be able to offer a pension scheme that's likely to perform better?

Company pension schemes are typically run by providers who often a range of investment funds. Maybe not quite the same choice as a SIPP but often enough choices to perform just as well. The costs are often low as well.