Change of pension advice needed

davnav

I'm currently in a 1/60th care pension paying 11.5% this is going up to 16.5% in April which seems too much to pay, my company is asking if people would like to change to a pension called salary sacrifice, sorry but am not clued up on pensions so looking to pick someones brains. What option is better, pay more or swap
Thanks 

hyubh

Whether pension contributions are paid via salary sacrifice or not is orthogonal to CARE vs. other sorts of pension. 'Salary sacrifice' is when your pay is reduced by an agreed pension contribution level, with your contributions then being made as employer contributions. This reduces National Insurance for both you and the employer. While salary sacrifice arrangements are less common for defined benefit (DB) schemes (CARE is a form of DB), it isn't impossible.

That said, I would guess the actual choice is between DB and DC (defined contribution). Unless the (actual) employer contribution is super-high, or revaluation in the CARE scheme is poor (sub-inflation), I'd stick with the 1/60 CARE.

dunstonh

I'm currently in a 1/60th care pension paying 11.5% this is going up to 16.5% in April which seems too much to pay,

For a 60ths scheme, 16.5% gross contributions don't seem that much.   Its worth about 30% of your salary.

 my company is asking if people would like to change to a pension called salary sacrifice, sorry but am not clued up on pensions so looking to pick someones brains. What option is better, pay more or swap

You will need to know what the employer and employee contribution is on the alternative scheme.  Add them together and if you get close to 30% then you are broadly similar.   I suspect you will find its half that or worse.   And that is why the employer offers a new plan and doesn't mind people leaving the old one.

Albermarle

There are two basic types of pensions .
Defined Benefit ( DB ) here each year you work and contribute you build up the tight to a certain amount of guaranteed pension income when you retire . 
Defined Contribution ( DC ) here you build up a pot of money from your and your employers contributions . The pot of money is normally invested in stocks and shares . You hope to build up a big pot but there is no guaranteed pension amount when you retire.

In the vast majority of cases DB is better than DC , partly because the employer is normally obliged to add more money that they would to DC schemes .

So put the term salary sacrifice to one side for now, and what you need to find out is whether they are trying to get you to switch from DB to DC, and if so how much will their contribution to the DC scheme be ?

davnav

Thanks for the input but been really busy to get back to the post. 

Current situation, I accepted to move to salary sacrifice, but when the forms arrived to sign, I seen  the figures and have now opted out as they wanted me to take £4300 reduction from my top line, this would mean taking home same money as a none trade person.

I've also told my company to remove me from my current 1/60th care pension aswell because the ever risising living costs.

So At present I will be without a pension, but I've asked if there's a smaller %rate pension available, if not then no pension at all 

hyubh

davnav said:

I seen  the figures and have now opted out as they wanted me to take £4300 reduction from my top line, this would mean taking home same money as a none trade person.

I've also told my company to remove me from my current 1/60th care pension aswell because the ever risising living costs.

Company beancounters must love you - you've voluntarily given yourself a massive paycut, when considered from a total renumeration point of view...

QrizB

davnav said:

I've also told my company to remove me from my current 1/60th care pension aswell because the ever risising living costs.
So At present I will be without a pension, but I've asked if there's a smaller %rate pension available, if not then no pension at all 

Obviously this is your choice to make, but many people on this board would give their left leg for a 1/60 CARE pension.

Linton

davnav said:

Thanks for the input but been really busy to get back to the post. 

Current situation, I accepted to move to salary sacrifice, but when the forms arrived to sign, I seen  the figures and have now opted out as they wanted me to take £4300 reduction from my top line, this would mean taking home same money as a none trade person.

I've also told my company to remove me from my current 1/60th care pension aswell because the ever risising living costs.

So At present I will be without a pension, but I've asked if there's a smaller %rate pension available, if not then no pension at all 

If you cant afford living costs now how will you manage when you stop working?  Any other way you choose of providing for your future instead of your employer-subsidised CARE pension is ikely to give you less money.

Rejecting Salary Sacrifice must result in more take home pay for the same benefits since you will save on NI.

I suggest you spend some effort in understanding how things work and rethink your strategy.

Notepad_Phil

davnav said:

Thanks for the input but been really busy to get back to the post. 

Current situation, I accepted to move to salary sacrifice, but when the forms arrived to sign, I seen  the figures and have now opted out as they wanted me to take £4300 reduction from my top line, this would mean taking home same money as a none trade person.

I've also told my company to remove me from my current 1/60th care pension aswell because the ever risising living costs.

So At present I will be without a pension, but I've asked if there's a smaller %rate pension available, if not then no pension at all 

Hmmm, you might be better off now, but you'll likely be much worse off when you get to retirement age. Personally, I'd have jumped at the chance of getting a similar pension for 16.5% of salary.

And don't forget that the top line reduction of £4300 will likely be much less of a difference to your take home salary once you consider the income tax and possibly national insurance savings that you'd be making fom salary sacrificing.

QrizB

Notepad_Phil said:

And don't forget that the top line reduction of £4300 will likely be much less of a difference to your take home salary once you consider the income tax and possibly national insurance savings that you'd be making fom salary sacrificing.

£4300 is 16.5% of £26k pa. If you sacrifice £4300 you'll be left with £21.7k. Using the MSE take-home pay calculator:

• £26000 gross  - £21342 per year net of tax and NI, £1779/month.
• £21700 gross - £18418 per year net, £1535/month.

So your £4300 pension contribution would cost you £2924/yr, £244/month, in your pocket.

Dazed_and_C0nfused

I've also told my company to remove me from my current 1/60th care pension aswell because the ever risising living costs.

Oh dear.  The vast majority of CARE (DB) pensions will use the net pay method of tax relief so by doing this you immediately increasing your taxable income and will be paying more tax each month.

As others have said this isn't a great move and the pension benefits you are accruing are an incredibly valuable part of your overall remuneration.

Lets say you earn £26,000.  Your 16.5% pension contribution is £4,290 but after tax relief the real cost to your take home pay is £3,432.

In return you will accrue a pension of £433.  Which will likely be inflation proofed and paid from your schemes normal pension age every year.  For the rest of your life.

You pay £3,432 once but get the inflation proofed £433 for maybe 30+ years.