Salary Sacrifice and Tax Relief

zagfles

Robert_McGeddon said:

soprano81 said:

I have a Royal London pension that both myself (7.5%) and employer (5%) contribute to which is through salary sacrifice and I am a higher rate taxpayer

OP, are you saying ALL the pension contributions are via salary sacrifice? Current workplace pension contributions mandated by government are 5% for employees and 3% for employers - might it be that your sal sac is only 2.5%? If that were the case then a claim for HR tax on the 5% may be relevant.

The mandanted minimums apply to employer contributions and total contributions. The employee needs to make up the difference. Eg 8% total, 3% employer. If the employer chooses to pay 8%+ the employee doesn't have to pay anything.

Robert_McGeddon

garmeg said:

I paid no employee contributions into my work pension scheme. It was all done by salary sacrifice with no identified employee contributions. The employer paid in 50% of the employer NI saving on the sacrificed salary as well.

I understand sal sac can be effected this way. Perhaps the OP will return and post to confirm this to be the case. If it's instead deduction + sal sac then the RL rep may have a point.

zagfles

Robert_McGeddon said:

garmeg said:

I paid no employee contributions into my work pension scheme. It was all done by salary sacrifice with no identified employee contributions. The employer paid in 50% of the employer NI saving on the sacrificed salary as well.

I understand sal sac can be effected this way. Perhaps the OP will return and post to confirm this to be the case. If it's instead deduction + sal sac then the RL rep may have a point.

Why would any employer do partial sal sac and partial RAS? It would make no sense except for employees whose salary is above the personal allowance but whose pension conts take them below the personal allowance, which clearly doesn't apply to the OP. And I doubt any employer actually goes to those lengths.

westv

On the subject of sal sac, is there a lot of admin involved when someone changes their contribution percentage. Just wondering if this is the reason some employers trot out the old "changes can only be made 1/4" even though that hasn't been the case for several years.

AlanP_2

westv said:

On the subject of sal sac, is there a lot of admin involved when someone changes their contribution percentage. Just wondering if this is the reason some employers trot out the old "changes can only be made 1/4" even though that hasn't been the case for several years.

Yes - it may not seem a lot at an individual level but by the time you multiply it up by the number of employees you can see how the employers costs can rack up.

The only 2 people I know who have access to SS have to set the %'age once a year, and every employee does it at the same time.

Not quite the same, but underlying principle is:

My wife and I are both in the LGPS and contributing to their AVC scheme, so effectively a DC pot. One of the services she was responsible for in the past was HR / Payroll, she knew how much effort was involved in making seemingly simple changes so only changed her AVC contributions once a year to minimise workload for the admin team, even though no rules to stop changes being made more often.

pilotamx

It's an interesting topic. I checked my contribution. I am high rate tax payer and I pay 7% via sal.sac. into pension. Employer pays 11%. The system we have where I can make changes to my contribution shows a tax of nearly 36% is applied to my sal.sac. contribution, so I want to pay 8000pa I get 5080pa net paid into pension. I have the option to move it to net contribution which apparently makes my pension contribution higher. This should increase taxation on my payslip, right? But, it seems there's no difference finally, just a different way to pay  taxes, right?

Dazed_and_C0nfused

Think you are confused.

With salary sacrifice you don't contribute anything to a pension, you agree to a lower salary in return for your employer contributing to the pension.  As you have a lower salary you don't pay any tax or National Insurance on the salary you have given up.

With relief at source you would pay more tax as your taxable pay will be higher but you get a 25% uplift on the amount going into your pension fund.

For most people salary sacrifice is the most tax efficient option.  It tends to be low earners who would be better off with relief at source.

MallyGirl

westv said:

On the subject of sal sac, is there a lot of admin involved when someone changes their contribution percentage. Just wondering if this is the reason some employers trot out the old "changes can only be made 1/4" even though that hasn't been the case for several years.

I guess it depends if it is a manual process. Mine is all online and I change it myself - no restriction on how often I do it.

AlanP_2

MallyGirl said:

westv said:

On the subject of sal sac, is there a lot of admin involved when someone changes their contribution percentage. Just wondering if this is the reason some employers trot out the old "changes can only be made 1/4" even though that hasn't been the case for several years.

I guess it depends if it is a manual process. Mine is all online and I change it myself - no restriction on how often I do it.

You may be correct, but are you actually going online to your employer's payroll application and updating your deduction amount or are you using an online portal to create a request that goes to payroll admin to action?

jamesd

AlanP_2 said:

The only 2 people I know who have access to SS have to set the %'age once a year, and every employee does it at the same time.

My former employer introduced an online form to request changes when we wanted to a couple of years after the change. All the forms had a 56% sacrifice limit to protect employees from taking too little pay, to go over that had to chat with the scheme manager then use the change request form with the actual amount in the note field. I eventually went to 70% or so plus most of my flexible benefits package.

AlanP_2 said:

You may be correct, but are you actually going online to your employer's payroll application and updating your deduction amount or are you using an online portal to create a request that goes to payroll admin to action?

Undoubtedly just a request in my case, but delivering a benefit to employees who are particularly likely to recognise its value.