NHS Car Lease through Salary Sacrifice impact on Pension

zemarcopolo

garmeg said:

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. 

Would you please clarify this. I had the impression that in the NHS fleet solutions contract,  salary sacrifice always reduces pensionable salary. Is this not the case?

CSL0183

zemarcopolo said:

garmeg said:

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. 

Would you please clarify this. I had the impression that in the NHS fleet solutions contract,  salary sacrifice always reduces pensionable salary. Is this not the case?

Yes, it is the case. If you earn say £40k pa and salary sacrifice £500pm then you’re pensionable salary drops to £34k. 

What this means for your pension is that instead of getting 1/54 of £40k into your pot for the year, you will only get 1/54 of £34k into your pot for that year. 

1/54 of £40k = £740
1/54 of £34k = £629. 

Say you done this for 10yrs and your salary remained stagnant for those 10yrs (ignoring compounding interest) 

10yrs worth of £740 = £7440 annual pension. 

10yrs worth of £629 = £6290 annual pension. 

I’m not clever enough to work out the compounding and inflationary impacts on top of this as your pot is increased by annual rate of inflation + 1.5% each year which would then make the two figures above even wider apart but just shows you what kind of impact there would be if in one of these schemes for 10yrs. 

If you lived for 25yrs past retirement then the lower annual amounts will start to come back and bite. 

These schemes are attractive for EV only where BIK is 0% currently (Although I think that rises to 1% and then 2% and so on every April) I guess it’s even more attractive for higher rate taxpayers but yes, certainly, your pension will take a hit. Perhaps okay for a couple of years or so but then what? When the lease on the Audi expires, so you just go back to a run of the mill PCP type car or do you get suckered into the NHS SS scheme?

Purplelady65

Just to make you aware (as it seems you might not be) but all NHS workers are being back into their old pension scheme until 31 March 2022. Then on 1 April 2022 everyone will transfer to the 2015 scheme. The Fire Brigade Union and judges took out a court case citing age and indirect discrimination. It took years and went all the way to the Supreme Court but they won! The government then had to accept that this ruling impacted on all public sector arrangements. If you’re looking at a lease car now then you need to factor this into your calculations unless you joined the nhs after 1 April 2015 in which case you would remain in the 2015 scheme. 

saucer

CSL0183 said

These schemes are attractive for EV only where BIK is 0% currently (Although I think that rises to 1% and then 2% and so on every April) I guess it’s even more attractive for higher rate taxpayers but yes, certainly, your pension will take a hit. Perhaps okay for a couple of years or so but then what? When the lease on the Audi expires, so you just go back to a run of the mill PCP type car or do you get suckered into the NHS SS scheme?

I think that sums up my thinking as well. Jam today or jam tomorrow?

CSL0183

Purplelady65 said:

Just to make you aware (as it seems you might not be) but all NHS workers are being back into their old pension scheme until 31 March 2022. Then on 1 April 2022 everyone will transfer to the 2015 scheme. The Fire Brigade Union and judges took out a court case citing age and indirect discrimination. It took years and went all the way to the Supreme Court but they won! The government then had to accept that this ruling impacted on all public sector arrangements. If you’re looking at a lease car now then you need to factor this into your calculations unless you joined the nhs after 1 April 2015 in which case you would remain in the 2015 scheme. 

I wasn’t aware of that, thanks. My partner is on the original 1995 scheme and never transitioned over in 2008. Although I just presumed she would have transitioned over to the CARE scheme in 2015. 

Are you saying that she is still accruing 1995 pension benefits to 31st March 2022 where it will then switch to the new CARE 2015 scheme. She started in the NHS 2002. 

saucer

Purplelady65 said:

Just to make you aware (as it seems you might not be) but all NHS workers are being back into their old pension scheme until 31 March 2022. Then on 1 April 2022 everyone will transfer to the 2015 scheme. The Fire Brigade Union and judges took out a court case citing age and indirect discrimination. It took years and went all the way to the Supreme Court but they won! The government then had to accept that this ruling impacted on all public sector arrangements. If you’re looking at a lease car now then you need to factor this into your calculations unless you joined the nhs after 1 April 2015 in which case you would remain in the 2015 scheme. 

I don’t think it is quite so straightforward as that. There was a consultation, now closed and the results are currently being reviewed. See here https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/900766/Public_Service_Pensions_Consultation.pdf
My understanding is that it is likely that people will have a choice as to whether to keep their membership for 2015 to 2022 in the new 2015 CARE scheme OR have those 7 years in the legacy (1995 or 1998 final salary scheme). A lot of people will actually be better off in the new scheme, but it really depends on your circumstances. 

What is pertinent in this thread is that there would be a negative impact on final salary calculation if you are in a SS arrangement at retirement.  Similarly your CARE accumulated benefits will be negatively affected by any SS arrangement if you choose to be in the 2015 scheme for those years (as summarised above by CSL0183). 

Bottom line is that the mccloud judgement sounds better than it is and salary sacrifice looks better than it is.

uF0n

Thread necro, but after searching I think continuing this thread seems reasonable!

I've been working through all the pros/cons of the NHS lease scheme and the impact on pension. One thing I discovered is that you can make additional payments to top up your pension, thus mitigating the reduction in pension due to the car lease.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension

I'm possibly trying to justify to myself  but I'm essentially seeing this as a basic spend your money or save your money scenario... spend money on a car, have less in in your pension pot; spend money on anything now instead of putting it into savings, have less in your savings pot later.

saucer

Bear this in mind if you are a higher rate tax payer bma-car-leasing-salary-sacrifice-examples-feb-2021.pdf

OldBeanz

I assumed this was a wheeze to help doctors in their 60's to stop overshooting their lifetime allowance.

spaniel101

uF0n said:

Thread necro, but after searching I think continuing this thread seems reasonable!

I've been working through all the pros/cons of the NHS lease scheme and the impact on pension. One thing I discovered is that you can make additional payments to top up your pension, thus mitigating the reduction in pension due to the car lease.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension

I'm possibly trying to justify to myself  but I'm essentially seeing this as a basic spend your money or save your money scenario... spend money on a car, have less in in your pension pot; spend money on anything now instead of putting it into savings, have less in your savings pot later.

Not quite.  Standard 2015 CARE accrues at 1/54 + CPI +1.5% whilst active.  CPI only in deferrment/retirement.   

2015 CARE 'Additional' Pension increases + CPI only.

Minus any reductions for early retirement, minus any reductions for lump sum.