Salary Sacrifice how does it work?

NottinghamKnight

Dazza1902 said:

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? 

Salary sacrifice or smart pensions are probably the most popular options certainly for larger companies, there is arguably a bit more paperwork in administration but given that many employers keep some or all of the employers ni savings then it should be a no brainer. 

Murphy_The_Cat

Dazza1902 said:

So why wouldnt employers do this if they are better off.?

Administration aggravation - as an (ex) employer) it can be a PITA to implement, plus employees "forget" that they've sacraficed part of their salary towards their pension and start mithereing the employer for additional salary.

Dazza1902

So how does the inland revenue view this? And if im deemed to be earning 18 k a year thats still ok for ni qualifying years (need 1 more yr for full sp). Surely sal sac must be seen as some kind of benefit in kind? 

Dazed_and_C0nfused

At the moment salary sacrifice is perfectly legitimate.

Whether Covid-19 changes that (along with other tax benefits of pension contributions) in the future is another matter.  Next Budget is in March I think.

If your taxable/NIC'able pay is £18k and spread evenly throughout the tax year then you should gain an additional qualifying year no problem.

Dazza1902

Thankyou kind folks, slowly but surely im becoming financially aware. Better late than never. 

Dazza1902

My employer is happy to do salary sacrifice for me. One question, i understand there are limits regarding earnings you can put in a sipp. If he pays me 18k (so i still get ni conts for tge 1 or 2 yrs i need for state pension), can he pay 21k into my sipp?? 

zagfles

Dazza1902 said:

My employer is happy to do salary sacrifice for me. One question, i understand there are limits regarding earnings you can put in a sipp. If he pays me 18k (so i still get ni conts for tge 1 or 2 yrs i need for state pension), can he pay 21k into my sipp?? 

Yes, no problem with that. You'll need to make sure the SIPP provider knows it's an employer contribution, and so doesn't claim tax relief on it.

Dazza1902

Great, he already pays some into my sipp as an employer via dd. This ive noticed does not get tax added so im guessing he just ups the direct debit. Winner