We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
We're aware that dates on the Forum are not currently showing correctly. Please bear with us while we get this fixed, and see Site feedback for updates.

NHS Car Lease through Salary Sacrifice impact on Pension

jimpom23
jimpom23 Posts: 11 Forumite
Part of the Furniture First Post Combo Breaker
Hi all
I'm hoping you can help this numeric illiterate when it comes to understanding the impact of the above scheme on my overall pension position
I am a higher rate taxpayer on the 2015 career average scheme, contributing 12.5% in pension with 20-25 yrs left until retirement and am looking into an electric car lease for 36months as the Benefit in Kind rates are very low and making the deal look attractive. My calculations for one particular quote are as follows:

Salary Sacrifice 

Monthly Gross Salary Sacrifice:£ 535.88
Savings on NI:£ -10.72
Savings on Tax:£ -165.79
Savings on Pension:£ -66.99
Total savings per month:£ -243.50
Monthly Take Home Pay reduced by:£ 292.38
Monthly Car Tax Liability:£ 0.00
Total cost per month:£ 292.38

From my limited understanding the liability is around the Pension and NI savings but what I ultimately would like to know is the material impact on my pension come retirement, per month. I'm hoping someone can clarify for me and ideally show me how to work this out so I don't have to bother any more strangers with stupid questions :D I found a similar post, albeit for a higher monthly cost and one respondent suggested a 3yr lease would take £35k out of their pension pot which sounds frightening?!!!

Thanks in advance
«13

Comments

  • dimbo61
    dimbo61 Posts: 13,727 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    How much does your NHS employer pay into your pension ?
    For example a Paramedic pays 9.3% and the NHS ambulance service pays 20.68% into your pension pot.
    So yes you save money on pension contributions but your employer saves a whole lot more.
    Less money in the pot means a poorer retirement.
    Can you not buy a 6 months old vehicle maybe a Nissan leaf ?
  • dimbo61 said:
    How much does your NHS employer pay into your pension ?
    For example a Paramedic pays 9.3% and the NHS ambulance service pays 20.68% into your pension pot.
    So yes you save money on pension contributions but your employer saves a whole lot more.
    Less money in the pot means a poorer retirement.
    Can you not buy a 6 months old vehicle maybe a Nissan leaf ?
    Hi Dimbo and thanks for the response - I pay in 12.5% and my employer pays in 20.68%

    I actually already have a car, which I would sell to help finance as the depreciation of that plus insurance, tax, fuel etc that is included with the lease is more than the lease would cost me (on paper at least). The driver at this moment in time is the deals that are available on Electric cars, this particular one is a £60k+ Audi ETron which at under £300/month would appear to be an amazing deal, but obviously not if it knocks tens of thousands off my pension!
  • AlanP_2
    AlanP_2 Posts: 3,499 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 26 October 2020 am31 11:59AM
    Have you asked your HR / pension people what the impact of using Salary Sacrifice would be on your pension as how the NHS scheme handles SS payments is the issue?

    Not car related but I am in the LGPS and don't have access to SS for anything but my understanding from comments on here for those who are part of other LGPS area schemes that do support SS payments is that anything contributed to the LGPS AVC pot under SS arrangements doesn't affect your main LGPS pension as that is calculated using your nominal annual salary as per youir grade and payscale.

    If the NHS scheme treats SS car leases in this way it has no effect.

    Is there not any information on this in the lease scheme guide / FAQs or in the NHS pension scheme guide / FAQS?
  • AlanP_2 said:
    Have you asked your HR / pension people what the impact of using Salary Sacrifice would be on your pension as how the NHS scheme handles SS payments is the issue?

    Not car related but I am in the LGPS and don't have access to SS for anything but my understanding from comments on here for those who are part of other LGPS area schemes that do support SS payments is that anything contributed to the LGPS AVC pot under SS arrangements doesn't affect your main LGPS pension as that is calculated using your nominal annual salary as per youir grade and payscale.

    If the NHS scheme treats SS car leases in this way it has no effect.

    Is there not any information on this in the lease scheme guide / FAQs or in the NHS pension scheme guide / FAQS?
    I have raised a ticket with the payroll provider but am yet to hear back - guidance suggests there is an impact and to understand that impact before signing up to any such scheme, but that is as far as it goes. It's obviously a decision for each person to make based on their own individual calculations, which I why I was hoping the specifics above might help provide some rough numbers in this case.
  • saucer
    saucer Posts: 483 Forumite
    Part of the Furniture 100 Posts Name Dropper
    Assuming your pension is under the 2015 scheme, this accumulates annually at a rate of 1/54 of your salary AFTER salary sacrifice.  More details of the 2015 scheme here https://www.nhsbsa.nhs.uk/sites/default/files/2017-03/Key Notes-2015 Scheme Estimates (web)-20161122-(V1).pdf

    Each 1/54 is increased to reflect inflation every year and all these amounts together will make up your annual pension. 

    The impact of the salary sacrifice is therefore that your pension contributions are reduced (the £66.99 per month),  and therefore so will your pension be, but as far as i can see, not by very much.  Another thing to bear in mind is that there will be additional tax to be paid in years 2 and 3 of the deal, as the tax break for electric cars is reduced, but this is very small (1% and 2% respectively).   
    Overall you may feel that these modest impacts on your future income are worth it.  I do agree that the deal on that car is very good.  I have a colleague who got one and is well chuffed!
  • saucer said:
    Assuming your pension is under the 2015 scheme, this accumulates annually at a rate of 1/54 of your salary AFTER salary sacrifice.  More details of the 2015 scheme here https://www.nhsbsa.nhs.uk/sites/default/files/2017-03/Key Notes-2015 Scheme Estimates (web)-20161122-(V1).pdf

    Each 1/54 is increased to reflect inflation every year and all these amounts together will make up your annual pension. 

    The impact of the salary sacrifice is therefore that your pension contributions are reduced (the £66.99 per month),  and therefore so will your pension be, but as far as i can see, not by very much.  Another thing to bear in mind is that there will be additional tax to be paid in years 2 and 3 of the deal, as the tax break for electric cars is reduced, but this is very small (1% and 2% respectively).   
    Overall you may feel that these modest impacts on your future income are worth it.  I do agree that the deal on that car is very good.  I have a colleague who got one and is well chuffed!
    Cheers Saucer, it's that "exactly how much" bit I'm keen to know! The Etron Sportback can be had for £375 too, it's an £85k car - I can't not do all I can to at least look into it!
  • garmeg
    garmeg Posts: 771 Forumite
    500 Posts Name Dropper Photogenic
    You are sacrificing £535 salary per month or £6,420 per year.

    If your pensionable salary is after this sacrifice (it may not be, it may be before so no impact) then your pension earned this year will be £6,420 / 54 or approx £120 lower. Assuming the pension grows in line with inflation up to retirement and is paid for 20 years then you will lose about £2,400 in pension income.

    This is similar to the tax saving so you are effectively paying £535 per month for the car from your own pocket if you allow for the lower pension.

    It may still be worth it, of course, but tne choice is yours. :)


  • garmeg said:
    You are sacrificing £535 salary per month or £6,420 per year.

    If your pensionable salary is after this sacrifice (it may not be, it may be before so no impact) then your pension earned this year will be £6,420 / 54 or approx £120 lower. Assuming the pension grows in line with inflation up to retirement and is paid for 20 years then you will lose about £2,400 in pension income.

    This is similar to the tax saving so you are effectively paying £535 per month for the car from your own pocket if you allow for the lower pension.

    It may still be worth it, of course, but tne choice is yours. :)


    Thanks Garmeg, so for every year I'm on the scheme my final pension will reduce by £120/yr or £10/month? So the cost of this particular 3yr deal would amount to a yearly reduction of £360 or £30/month?
  • garmeg
    garmeg Posts: 771 Forumite
    500 Posts Name Dropper Photogenic
    jimpom23 said:
    garmeg said:
    You are sacrificing £535 salary per month or £6,420 per year.

    If your pensionable salary is after this sacrifice (it may not be, it may be before so no impact) then your pension earned this year will be £6,420 / 54 or approx £120 lower. Assuming the pension grows in line with inflation up to retirement and is paid for 20 years then you will lose about £2,400 in pension income.

    This is similar to the tax saving so you are effectively paying £535 per month for the car from your own pocket if you allow for the lower pension.

    It may still be worth it, of course, but tne choice is yours. :)


    Thanks Garmeg, so for every year I'm on the scheme my final pension will reduce by £120/yr or £10/month? So the cost of this particular 3yr deal would amount to a yearly reduction of £360 or £30/month?
    Assuming that your pensionable salary is reduced as a result, yes.

    However your pensionable salary may be the salary before the car salary sacrifice so it might be worth checking which is the case.
  • saucer
    saucer Posts: 483 Forumite
    Part of the Furniture 100 Posts Name Dropper
    edited 27 October 2020 pm31 1:12PM
    garmeg said:
    jimpom23 said:
    garmeg said:
    You are sacrificing £535 salary per month or £6,420 per year.

    If your pensionable salary is after this sacrifice (it may not be, it may be before so no impact) then your pension earned this year will be £6,420 / 54 or approx £120 lower. Assuming the pension grows in line with inflation up to retirement and is paid for 20 years then you will lose about £2,400 in pension income.

    This is similar to the tax saving so you are effectively paying £535 per month for the car from your own pocket if you allow for the lower pension.

    It may still be worth it, of course, but tne choice is yours. :)


    Thanks Garmeg, so for every year I'm on the scheme my final pension will reduce by £120/yr or £10/month? So the cost of this particular 3yr deal would amount to a yearly reduction of £360 or £30/month?
    Assuming that your pensionable salary is reduced as a result, yes.

    However your pensionable salary may be the salary before the car salary sacrifice so it might be worth checking which is the case.
    The pension is indeed reduced to reflect the gross reduction in pensionable salary.  You are correct that this amounts to just under £120 each year.  Remember that this figure would have been uplifted by inflation + 1.5% every year until you retire.  It is therefore going to be a lot more than £120 by the time it comes into payment, even allowing for inflation.  If you change the car at the end of the 3 year deal and go again, and again, the final impact on your pension will certainly add up.  That doesn't necessarily make it a bad deal though.  
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 348.4K Banking & Borrowing
  • 252.1K Reduce Debt & Boost Income
  • 452.4K Spending & Discounts
  • 241K Work, Benefits & Business
  • 617.3K Mortgages, Homes & Bills
  • 175.7K Life & Family
  • 254.1K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16K Discuss & Feedback
  • 15.1K Coronavirus Support Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.