Salary exchange

soupy600

Hi everyone,

Hopefully i've posted this in the right place.

I'm looking some information about salary exchange and how i would find more out about it.

So my company have offered us a salary exchange and from what i understand form it are the follow

• Our salary is still base on the same value (for pay deals/ mortgages/ benefits etc) 
• They pay us slightly less but in return we save on tax and NI and they will pay more into our pension. 
• there for receiving slightly more net pay.

From looking at the example they have provided (close to my pay) it all looks good but how is it effected if i do overtime ontop of this or pay more into my pension? Is there any online calculator that work it out for you?

Dazed_and_C0nfused

From looking at the example they have provided (close to my pay) it all looks good but how is it effected if i do overtime ontop of this or pay more into my pension? Is there any online calculator that work it out for you?

Unless you are a low earner, not paying tax or only a small amount of tax, then it is usually the most tax efficient way of getting money into to a pension as you save both tax and NI (by not having the income to pay tax or NI on in the first place).

Overtime is probably a query for your employer.

How do you plan on paying more into your pension, by higher salary sacrifice or separate contributions outside of payroll?

400ixl

Usually salary sacrifice into pension is against your base salary value. Overtime is not usually part of base pay and therefore is taxed as income and does not change the amount you sacrifice or that the company pays in.

soupy600

Dazed_and_C0nfused said:

From looking at the example they have provided (close to my pay) it all looks good but how is it effected if i do overtime ontop of this or pay more into my pension? Is there any online calculator that work it out for you?

Unless you are a low earner, not paying tax or only a small amount of tax, then it is usually the most tax efficient way of getting money into to a pension as you save both tax and NI (by not having the income to pay tax or NI on in the first place).

Overtime is probably a query for your employer.

How do you plan on paying more into your pension, by higher salary sacrifice or separate contributions outside of payroll?

Hi Thanks for the reply,

I have asked my employer and waiting on a reply but just thought i'd try and find out some information myself.

Currently they pay 4.5% and the employee pays 4.5% into the pension as part of this the employer will pay 9% and employee 0% (unless they want to pay more)

soupy600

400ixl said:

Usually salary sacrifice into pension is against your base salary value. Overtime is not usually part of base pay and therefore is taxed as income and does not change the amount you sacrifice or that the company pays in.

Ah thanks or the comment.

So it may be all base on the salary and the the overtime etc doesn't come into play for this and is paid as normal at the original rate?

Albermarle

Currently they pay 4.5% and the employee pays 4.5% into the pension as part of this the employer will pay 9% and employee 0% (unless they want to pay more)

Even if the employee asks to pay more , in fact what happens is that your salary reduces further and the employer contribution rises above 9%.

The employer also saves NI payments doing it this way and a few generous employers rebate this back to the employee. Worth checking about that .

Probably worth noting that only 9% going into pension would generally be considered inadequate , unless you were under 30 .

soupy600

Albermarle said:

Currently they pay 4.5% and the employee pays 4.5% into the pension as part of this the employer will pay 9% and employee 0% (unless they want to pay more)

Even if the employee asks to pay more , in fact what happens is that your salary reduces further and the employer contribution rises above 9%.

The employer also saves NI payments doing it this way and a few generous employers rebate this back to the employee. Worth checking about that .

Probably worth noting that only 9% going into pension would generally be considered inadequate , unless you were under 30 .

I've asked a few questions to my employer and will see what they say.

I'm 40 and the only thing i see i get out of all this is not paying my pension (4.5% of it anyway) and getting an extra £160 net pay a year.

Albermarle

There are three ways that an employer can take your pension contributions from your wages .Salary exchange/salary sacrifice ( same thing ) is one of them .

In the end you get exactly the same amount in tax relief with any of the three methods, but with salary exchange you pay less NI . The more you contribute the more NI you save, as well as of course having more in your pension pot for when you retire.  . As mentioned some employers even give you their NI savings as well.

soupy600

Albermarle said:

There are three ways that an employer can take your pension contributions from your wages .Salary exchange/salary sacrifice ( same thing ) is one of them .

In the end you get exactly the same amount in tax relief with any of the three methods, but with salary exchange you pay less NI . The more you contribute the more NI you save, as well as of course having more in your pension pot for when you retire.  . As mentioned some employers even give you their NI savings as well.

Thanks, at the end of the day on my flat salary i end up saving which is all i'm worried about lol but if i do a load of overtime through out the year do i still end saving teh same way?

af1963

Employers can handle the overtime in different ways.  Some might set up your sacrifice amount as a fixed sum each month - if they do it that way, you won't sacrifice anything extra from any overtime pay that you earn. 

Others ( including mine ) do it as a percentage of my total gross pay - which means that I also sacrifice part of any overtime/bonuses I might receive.

I've found it to be a good deal for me - for every £1 that I choose to sacrifice, the full £1 goes into my pension ( plus my employer adds on part of their NI savings, which makes it  about £1.06 ). Even if I pay 20% tax on three quarters of it when I take the money out, it'll still be worth about 90p.

If my employer didn't top it up, it would still be worth about 85p when I take it.

If I hadn't sacrificed it, 20p would go on tax and 12p on NI leaving me only 68p.
If I was a higher rate taxpayer, 40p would go on tax and 2p on NI, leaving me 58p.

soupy600

af1963 said:

Employers can handle the overtime in different ways.  Some might set up your sacrifice amount as a fixed sum each month - if they do it that way, you won't sacrifice anything extra from any overtime pay that you earn. 

Others ( including mine ) do it as a percentage of my total gross pay - which means that I also sacrifice part of any overtime/bonuses I might receive.

I've found it to be a good deal for me - for every £1 that I choose to sacrifice, the full £1 goes into my pension ( plus my employer adds on part of their NI savings, which makes it  about £1.06 ). Even if I pay 20% tax on three quarters of it when I take the money out, it'll still be worth about 90p.

If my employer didn't top it up, it would still be worth about 85p when I take it.

If I hadn't sacrificed it, 20p would go on tax and 12p on NI leaving me only 68p.
If I was a higher rate taxpayer, 40p would go on tax and 2p on NI, leaving me 58p.

Brilliant @af1963 thats for the reply. mine seems to be just set of my standard wage and overtime etc won't come into it. Still seems worth going for