Salary Sacrifice how does it work?

Dazza1902

My employer(with whom i am friends) keeps trying to motivate me with money, i keep telling him i want to retire.
He wants to give me a pay rise. Whatever he pays me extra will go into my pension, what is the most efficient to receive it? 

zagfles

What sort of amounts?

Dazza1902

Nothing huge, £1500 pa

zagfles

And salary? Best way is usually to get the employer to pay direct into the pension, ie "salary sacrifice" as per your title. Might make a difference if basic salary is very low or high.

garmeg

Dazza1902 said:

My employer(with whom i am friends) keeps trying to motivate me with money, i keep telling him i want to retire.
He wants to give me a pay rise. Whatever he pays me extra will go into my pension, what is the most efficient to receive it? 

Dazza1902 said:

Nothing huge, £1500 pa

Best way is salary sacrifice. Would that amount sway your retirement decision though?

Dazza1902

I earn 38 k, im not particularly money orientated but do not want to be a pauper in retirement. 
I want to semi retire at 60 and do something different, so its not likely to change my mind. 
How is salary sacrifice better than him paying more directly into my sipp
Paying me extra 1500 quid and getting tax relief added to my sipp? 

Dazed_and_C0nfused

If you pay £1500 into a SIPP the pension company will add £375 tax relief giving you a fund of £1,875.

If you sacrifice £1,875 of your salary then your employer will pay £1,875 into your pension.  As it is an employer contribution there is no tax relief due so you will have £1,875 in your pension fund.

But you have £1,875 less salary to have tax and NIC deducted so, on £38k, you won't pay basic rate tax of £375 or NIC of £225.  So your net pay would only drop by £1,275 but you still have £1,875 in your pension fund.

Or you could sacrifice £2,205 into your pension and have £1,500 less take home pay.

As you have a lower salary your employer also saves NIC and some add this (or some of it) to your pension as well.

Dazza1902

Right, i think what your saying is i would be 225 better off on sal sac than being paid the 1500?? and paying it in myself?? 
And this goes into the sipp of my choice? This is a win win surely? 
Ok, so im saving 200 pm into a sipp and adding whatever i can a month on top, usually at least 1k, and going up in 6 months when my mortgage if done. 
Is there a limit? We can almost live off my wifes teachers wage. 

cloud_dog

As a BRT payer you are 12% better off (reduction in NI contributions) using SS that normal 'relief at source' or 'net pay' employer schemes.  If you can go down this route, perhaps you can persuade your employer to pay you some/all or their NI savings (13.8%).

You cannot sacrifice below National Minimum Wage, which works out as approximately £1500pm, although it really depends on the hours you have worked in the payment period.

Dox

Dazza1902 said:

Right, i think what your saying is i would be 225 better off on sal sac than being paid the 1500?? and paying it in myself?? 
And this goes into the sipp of my choice? This is a win win surely? 
Ok, so im saving 200 pm into a sipp and adding whatever i can a month on top, usually at least 1k, and going up in 6 months when my mortgage if done. 
Is there a limit? We can almost live off my wifes teachers wage. 

Check your employer is willing to pay it into your choice of SIPP (sounds like they will if they want to keep you, as they clearly do).

Yes, there's a limit to how much you can sacrifice - you can't take your salary below minimum wage requirements. 

Dazza1902

Ok, he will do that because he's a friend, by the sounds of it he's also quids in, and unlike me he is business focused. He already pays into my sipp rather than the auto enrolment pension. 
So why wouldnt employers do this if they are better off.? I cannot understand why this wouldnt be the most popular way to pay into a pension?