Can you Salary Sacrifice 100% of a PILON payment and what about employer contributions?

vacheron

Hi all. 
There are a couple more hurdles to go, but if all goes well I should be being made redundant in the next few months. If this comes to plan I should also be eligible for PILON of my notice period which is currently 12 weeks. 
My current employer offers a good salary sacrifice scheme (Including giving the employee 100% of all company NIC savings on any AVC's) so I was planning on asking the company to to sacrifice 100% of my PILON into my pension but, as ever, I have a couple of questions:

1. PILON can be interpreted as saying "here are your 12 weeks of pay in advance so you don't need to bother coming in to work" (and it is taxed as such), but with my regular monthly sacrifice I am aware that I am not allowed to sacrifice anything approaching 100% as that would make my apparent salary lower than the national minimum wage. Would this also apply to a PILON payment as it could be considered that they are paying me for 3 months worth of "hourly rate" even though they don't require me to physically be there?  
2. Assuming the above interpretation is correct, had I worked my 12 weeks notice instead, my employer would have added their normal contribution (5% employee, 9% employer) to my pension contribution each month. Would the company still be obligated to provide the 3 "virtual" months of employer contributions for the months they are offering PILON for?

 Any insight would be much appreciated. Thanks. 

itsmeagain

Lieu of notice is instead of notice. I.e, you are no longer an employee when your Lieu of notice starts. You cannot expect the same terms as working your notice period. Whilst they are permitted to apply 'redundancy' sacrifice, they do not have to, and may find it difficult in their software if paid the month AFTER you have left.
In which case you would not expect employer contribution because you won't be an employee for PILON and you give up all other terms & conditions of your notice period in exchange for PILON.
If they are prepared to pay it via SS for you, even without company contribution (that you would not get on the AVC anyway), it does make sense, as you save the NI & tax. You may or not be taxed when taking your DC/SIPP but usually at a lower rate (considering personal allowance & 25% tax free).
All 3 months pay will be considered as one month. The good news is that NI is done monthly (not yearly), so you pay 12% on the 1st £4k and only 2% on the rest.
Also, if they do allow you via SS, make sure you reach enough NI contributions for this years 'stamp'.
You can always load your AVC's for next few months BEFORE leaving if you can't use your PILON.
You can also pay the PILON in the scheme AFTER you leave. You would not get the NI benefit but you'd still get the tax.
It would help if you give details of your redundancy package to understand the size of the opportunity and make it more tangible.

vacheron

Thanks very much for that info itsmeagain. Really useful.  
I don't have to worry about the NI as I have a couple of alternative job offers lined up, so I will probably hit my stamp threshold regardless (plus I only have one more years contribution to make and for my full new state pension, about 20 or so years left to do it in, so missing one year wouldn't be the end of the world anyway).

The combined NI in the one month meaning a large amount would only incur 2% is useful to know too, but I am currently a higher rate taxpayer (or at least I would be if it wasn't for the Salary Sacrifice, so obviously it would be rude not to attempt to exploit it to the max just before I leave if I can.

PS. apologies for the late reply, I really can't stand the way the new MSE forum software handles notifications, it sends me about 30 emails about a topic I posted once in 9 months ago, but doesn't think it useful to let me know when someone replies to a thread I CREATED!   

itsmeagain

You don't require salary sacrifice to stop becoming a 40% tax payer. You can pay your pension externally and get the tax you've paid back. It's just the NI benefit you'll lose without salary sacrifice.

Albermarle

itsmeagain said:

You don't require salary sacrifice to stop becoming a 40% tax payer. You can pay your pension externally and get the tax you've paid back. It's just the NI benefit you'll lose without salary sacrifice.

Salsac ( or a net pay arrangement) is also useful as all the tax saving goes immediately into the pension.
If you have to claim some back later then quite possibly it will not find its way back to the pension and get spent on other things ,

vacheron

itsmeagain said:

You don't require salary sacrifice to stop becoming a 40% tax payer. You can pay your pension externally and get the tax you've paid back. It's just the NI benefit you'll lose without salary sacrifice.

Thanks, I appreciate that, I just added that in order to suggest the approximate size of the 12 weeks PILON and to emphasize that should I not be able to sacrifice all (or even some) of it, having the majority of the PILON paid with only 2% NI deducted (or all PILON at 2% NI if they pay it in the same month as my normal final salary), is very useful information which I hadn't considered.

vacheron

Albermarle said:

itsmeagain said:

You don't require salary sacrifice to stop becoming a 40% tax payer. You can pay your pension externally and get the tax you've paid back. It's just the NI benefit you'll lose without salary sacrifice.

Salsac ( or a net pay arrangement) is also useful as all the tax saving goes immediately into the pension.
If you have to claim some back later then quite possibly it will not find its way back to the pension and get spent on other things ,

Agreed, I know that I can claim back the higher 20% without salsac and it would still be included in my adjusted net monthly, just as you say, salsac is just so much easier, more flexible, beneficial, and just better all round!