Salary Sacrifice

german_keeper

I am looking to increase contributions to my wife's NEST pension. Original plan was just to contribute direct but it seems that each contribution would cost me 1.8%. So I decided to put the money into her bank account and increase her conts via her salary.

So she emailed HR and got the following reply: "We can confirm that your current contribution rates are 5% employee and 3% Employer and if you like you can increase your employee contributions at any time and all we require is an email confirmation with your chosen percentage and the effective date and we will action this for you via a salary sacrifice arrangement".

Now my understanding of salary sacrifice is very basic but that it is essentially a good thing because effectively your NI contributions end up in your pension. If you are lucky your employer also pays some or all of their contribution to your pension as well. My wife works 27.5 hours per week @ £8.72 per hour. Latest payslip shows monthly gross of £1039.57. EE pension conts of £21.12 and ER conts of £15.84. Now this seemed low to me, 5% EE contribution would be £51.95, or £41.56 if the tax relief was included within the overall 5%. ER cont at 3% should be £31.17.

I recalled a post on another thread a few days ago that I didn't really follow at the time but I think I have now managed to work out the calculations. They seem to have deducted the Lower Earnings Limit figure of £512 from her salary and then worked out the pension contributions from the remaining £527. Are they allowed to do that, they are only actually paying about half of what they should be. To add insult to injury her NI conts are £38.47 which is correct, £1039 less £719 Primary Threshold x 12%. So these NI conts aren't even going into her pension. I have checked her NEST account and it confirms all these figures.

One final question. We are going to request increasing the conts by 35%, about £363 per month. If they are entitled to do what they are doing as described above there is no reason for the full £363 plus tax relief not to find it's way into the pension is there?
 

NoMore

Salary Sacrifice saves NI , the company is under no obligation to add this saving to your pension pot, Some do and Some don't

Dazed_and_C0nfused

Salary sacrifice means you don't contribute to a pension.  You agree to a reduced salary in return for your employer contributing to the pension.

The tax and NI saving would come from not having the salary to pay tax on in the first place.

german_keeper

NoMore said:

Salary Sacrifice saves NI , the company is under no obligation to add this saving to your pension pot, Some do and Some don't

I am aware of that, my question wasn't about that, sorry if it was a bit long winded.

german_keeper

Dazed_and_C0nfused said:

Salary sacrifice means you don't contribute to a pension.  You agree to a reduced salary in return for your employer contributing to the pension.

The tax and NI saving would come from not having the salary to pay tax on in the first place.

I know that. That's why I included details of her hours and hourly rate to show that her gross pay was unaffected. What they appear to have done is worked out the employer pension contribution on gross pay less LEL.   

xylophone

https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-contributions-using-qualifying-earnings.html

german_keeper

xylophone said:

https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-contributions-using-qualifying-earnings.html

Thanks xylophone that does seem to confirm it is correct. Seems very tough on low paid employees to me. Mind you I have a gold plated civil service pension so swings and roundabouts between the 2 of us I suppose.
But there also seems to be no reason why the full amount of the extra contribution won't end up in the pension along with the tax relief.  

Dazed_and_C0nfused

Theregerman_keeper said:

xylophone said:

https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-contributions-using-qualifying-earnings.html

Thanks xylophone that does seem to confirm it is correct. Seems very tough on low paid employees to me. Mind you I have a gold plated civil service pension so swings and roundabouts between the 2 of us I suppose.
But there also seems to be no reason why the full amount of the extra contribution won't end up in the pension along with the tax relief.  

There is no pension tax relief on salary sacrifice pension contributions. 

The amount sacrificed gets paid into the pension by the employer

Nothing is paid by the employee

Thrugelmir

german_keeper said:

xylophone said:

https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-contributions-using-qualifying-earnings.html

 Seems very tough on low paid employees to me. 

Know nothing of the state of your wife's employers finances. As merely an observation. The introduction of auto enrollment imposed an immediate additional cost burden onto employers. For many employers payroll costs are often their largest overhead. A few % may not sound much but can soon mount up on total costs. Particularly when employers have annual minimum wage legislation to comply with as well. Mitigation isn't just about retaining profit for the company but possibly maintaining survival as well. Overall low paid employees are far better off than a few years ago. 

fifeken

german_keeper said:

One final question. We are going to request increasing the conts by 35%, about £363 per month.

I don't think you'll be able to do that as you can't sacrifice to below the minimum wage, which is not far off where she is just now.

Mick70

noticed the comment that the govt does not contribute to the pension - no tax relief ?  So does that mean no govt top up and unable to claim back 20% on tax return?   

Will salary sacrifice get a 40% tax payer more into his/her pension ??