Any views on NEST?

jamesd

ajfielden said:

Yes I've checked and it is salary sacrifice.

That greatly improves the position of NEST. NEST used to ban transfer out until age 55 at least but now permits it at any age provided you have at least temporarily stopped contributing (which doesn't mean opting out). So to maximise the benefit of salary sacrifice you can use NEST to take the contributions and periodically transfer out to another pension.

LV_426

Correction to my earlier post. It turns out that this is NOT a salary sacrifice scheme.

Does this mean I have to mess around reclaiming tax every year?

Thrugelmir

jamesd said:

It's a fine choice for employers who are too lazy or small to pick something better or perhaps who think that their employees are too clueless to notice or care.

Employers have a business to run. Not their remit to be investment advisers. 

Malthusian

ajfielden said:

Correction to my earlier post. It turns out that this is NOT a salary sacrifice scheme.

Does this mean I have to mess around reclaiming tax every year?

If your employer doesn't offer salary sacrifice you can't reclaim the National Insurance. Bad luck.

If it's a "relief at source" scheme you will have to reclaim tax via your tax return if you are a higher/additional rate taxpayer. Otherwise, no extra faff.

If it's a "net pay" scheme there is no extra faff. But if you are a non taxpayer you will miss out on tax relief compared to a relief at source scheme. (HMRC are supposed to be sorting this out but not until 2024/25.)

Alexland said:

Some even go the extra mile and also pass on the employer NI saving but that seems to be pretty rare.

Mine claims that saving goes into the extra costs of running the sal sac admin. Hmm.

It's a reasonable thing to say because employers that offer salary sacrifice have to make sure that employees are aware of the potential unintended consequences (e.g. eligibility for mortgages, reduced benefit for Income Protection insurance) and that they don't break minimum wage law. It can't be automated as easily as a standard net pay arrangement.

Ultimately whether they pay in the employer NI saving is part of the deal between employer and employee, same as the pension contribution rates and your salary package.

LV_426

Malthusian said:

ajfielden said:

Correction to my earlier post. It turns out that this is NOT a salary sacrifice scheme.

Does this mean I have to mess around reclaiming tax every year?

If your employer doesn't offer salary sacrifice you can't reclaim the National Insurance. Bad luck.

If it's a "relief at source" scheme you will have to reclaim tax via your tax return if you are a higher/additional rate taxpayer. Otherwise, no extra faff.

If it's a "net pay" scheme there is no extra faff. But if you are a non taxpayer you will miss out on tax relief compared to a relief at source scheme. (HMRC are supposed to be sorting this out but not until 2024/25.)

How will I know which one it is?

So I'm thinking that there's no real advantage to paying extra contributions into this non-salary sacrifice NEST scheme, and I should just go with the minimum 4% (employer contributes 8%)

Albermarle

The terminology can be confusing .

Relief at source - means your contributions are taken from your pay after tax . The pension provider will add back in tax relief at 20% . If you are due some higher rate tax relief then you have to claim this back from HMRC and any rebate comes back to you directly . 

Net pay - means your contribution come out of your salary before tax is taken off. In this case you get all tax relief due by not paying the tax in the first place.

LV_426

Albermarle said:

The terminology can be confusing .

Relief at source - means your contributions are taken from your pay after tax . The pension provider will add back in tax relief at 20% . If you are due some higher rate tax relief then you have to claim this back from HMRC and any rebate comes back to you directly . 

Net pay - means your contribution come out of your salary before tax is taken off. In this case you get all tax relief due by not paying the tax in the first place.

Thank you, I think this is coming into focus now.

So with the above two arrangements, I still get the tax relief on my pension contributions. But with salary sacrifice, I get the additional benefit of NI reduction?

Correct?

Albermarle

ajfielden said:

Albermarle said:

The terminology can be confusing .

Relief at source - means your contributions are taken from your pay after tax . The pension provider will add back in tax relief at 20% . If you are due some higher rate tax relief then you have to claim this back from HMRC and any rebate comes back to you directly . 

Net pay - means your contribution come out of your salary before tax is taken off. In this case you get all tax relief due by not paying the tax in the first place.

Thank you, I think this is coming into focus now.

So with the above two arrangements, I still get the tax relief on my pension contributions. But with salary sacrifice, I get the additional benefit of NI reduction?

Correct?

That is correct .
Couple of points to note , if you pay any higher rate tax .
With the Net pay - all tax relief goes directly to your pension
With relief at source , any higher rate tax relief comes back to you directly . Either in the form of a rebate or an increased tax code ( both give the same end result ). You can of course choose to contribute it to your pension but I think for a lot of people it just gest lost in general expenditure.

LV_426

And btw, I really don't know why this has to be so complicated. 

LV_426

So would you say it is still beneficial for me to make extra contributions (say 12%) into this pension scheme?