LGPS and Salary Sacrifice

Spreadsheet_Addict

Perhaps one for Silvertabby - I've been in the LGPS for 11 years (so 4 final salary, 7 CARE) and am about to have a substantial pay rise. I plan to retire in 3 years at 55.

I already pay into the Prudential AVC at £200 per month and am about to raise it to £800 a month, with an eventual rise to £2000 a month in my final year aged 54-55 after my mortgage is paid.

My employer has recently joined a salary sacrifice scheme and my question is; given the large AVC payments I plan to make, would changing to use salary sacrifice reduce the final salary element of my pension by calculating it on a lower salary?

This is particularly pertinent as my salary is now significantly higher than it was for most of the CARE years and given the McCloud judgement, I calculate that taking all of my 14 years pension at 55 based on the 2008 final salary scheme would have me a few hundred pounds better off, even with an actuarial reduction for taking at 55 (10 years early under the 2008 scheme.)

Appreciate any steer on this as the Sal sac company is not responding to this query.

Dazed_and_C0nfused

This suggests you may well be ok but no doubt best to get confirmation from the employer if it has a significant impact.

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.lgpslibrary.org/assets/bulletins/2016/147App2.pdf&ved=2ahUKEwi-udXHjJnxAhUKkRQKHYVvCFwQFjALegQIGBAC&usg=AOvVaw3dmFKI7PZXevkmc2ienciL

gundo

I pay over a £1K a month in AVCs via Salary Sacrifice to USS (Universities Superannuation Scheme) pension scheme and it doesn't affect my career average defined benefit pension as that is based on my my actual salary prior to the AVCs being taken out via salary sacrifice. You save both NI and PAYE tax, and these savings are significant.

I also bought an additional 2 weeks leave this past year (my employer offered this as an option to reduce their wage bill due to Covid, they were also making it easier to take sabbaticals or reduce your hours, both of which were aimed at reducing their payroll), which is paid for in 12 monthly payments which come out as Salary Sacrifice to save me NI & PAYE tax but also saves my employer NI - this however DOES reduce my actual salary, which makes sense as I've actually reduced my working hours by 10 working days a year unlike the salary sacrifice for the AVCs pension etc which is just an HMRC approved accounting wheeze to reduce NI and PAYE tax.

I suggest contacting the pension scheme and getting confirmation from them. I rang and spoke to USS recently and they were incredibly helpful. Also your employer should have a pensions administrator who you could speak to as well.

coroner

I am also in the LGPS and salary sacrifice just over 2k per month with no adverse outcomes on final salary element of pensionsion

Spreadsheet_Addict

Thanks. Really helpful. 

Silvertabby

It shouldn't do - but as your company has only just set up the sal sac scheme, I would double check with them before paying significant amounts into your AVC. 

MX5huggy

They report to the pension what is called Notional Salary, that is what you would have been paid without the salary sacrifice.

I presume you have noted that you can’t sacrifice salary above that would reduce your salary below the national minimum wage. 

Spreadsheet_Addict

Thank everyone for your helpful responses.  I've queried with my local LGPS administrator to be sure.

Neasy

Also, if you time your retirement carefully you should be caught by the "best of the last 3 years" calculation.