Salary sacrifice concern

RobHT

Hi,

I'm digging around this concept of salary sacrifice, it seems a bit weird.
Look at this video.
Specifically, at this breakdown:



Even though I can contribute more into my pension pot, this seems to be just an illusion.

Scenarios
1. Without sacrifice, that contribution would be pretty much the same, but into the state pension, paid through national tax, or national insurance, whatever, the state decides.
Instead, with salary sacrifice, my company would pay more into my pension trust fund, which I can potentially manage by myself.

2. Due to the restrictions applied by my trust fund, the flexibility is not that great and the fund won't necessary perform better than the one used by the state pension (which I don't know what it is)

3. There is a possibility that the state pension remains always the same or with a ridiculous increase to stay behind the inflaction, if that's the case, salary sacrifice would definitely be a better option.

DANGER ZONE
1. The mortgage affordability will be less, due to taking less money as gross salary.

Any remark?

lisyloo

1. £6k is not the same as £7k.

2. no idea what you mean by trust fund. There is no fund for the state pension, do you mean auto enrolment?

3.explain what you mean by state pension

are you in the uk?

Marcon

I don't think you've quite grasped the basics, or understood why salary sacrifice is such a great idea for almost everyone. Have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/salary-sacrifice-and-your-pension

As for mortgage affordability - it's a minor point for most people, given that the amount being sacrificed is relatively modest in relation to their overall salary. If that's not the case, there is nothing to stop them switching away from salary sacrifice in anticipation of applying for a mortgage.

Albermarle

The state pension is unconnected  with salary sacrifice .

Salary sacrifice is just an alternative method for you to contribute to your workplace pension .

Apart from that there seems to be a mistake in the illustration . The EmployER contribution should be the same for both methods .

HappyHarry

Albermarle said:

The state pension is unconnected  with salary sacrifice .

Salary sacrifice is just an alternative method for you to contribute to your workplace pension .

Apart from that there seems to be a mistake in the illustration . The EmployER contribution should be the same for both methods .

Employers often add some or all of their NIC savings to the employees pension pot too. 

*edit - just realised the employer contribution hoc is empty on one side of the table, when it shouldn’t be. It will, however, be lower than it will by salary sacrifice.

cloud_dog

RobHT said:

DANGER ZONE
1. The mortgage affordability will be less, due to taking less money as gross salary.

Most mortgage providers understand the concept /implications of Salary Sacrifice on an employees reportable earnings, and it really should not be an issue.

RobHT

lisyloo said:

1. £6k is not the same as £7k.

2. no idea what you mean by trust fund. There is no fund for the state pension, do you mean auto enrolment?

3.explain what you mean by state pension

are you in the uk?

1. I didn't get the point though, it's interestingly more, did you mean something else?

2. Let's call it pension fund then, much easier .

3. The state pension is the minimum pension that the state gives you, if you have been working for the minimum amount of years required and if you qualify for the minimum pension age. It's around 600 pounds if I'm not wrong.

Main main point on this is the following, it seems moving the money from the state contributions directly to your fund (the company does it for me for example).
In one way or another, it ends up in a pension scheme, but as I said, it allows you to have more control over it, which doesn't necessarily mean you will do great with your choices.

Dazed_and_C0nfused

3. The state pension is the minimum pension that the state gives you, if you have been working for the minimum amount of years required and if you qualify for the minimum pension age. It's around 600 pounds if I'm not wrong.

It doesn't all have to be from working, you can get NI credits for a variety of reasons.

The standard new State Pension is worth much more than £600 (monthly).

It is currently £179.60/week.  Which is £9.3k/year.  Or nearly £780/month.

NB.  You can't be paid State Pension monthly, it's weekly, fortnightly or 4 weekly.

Main main point on this is the following, it seems moving the money from the state contributions directly to your fund (the company does it for me for example).
In one way or another, it ends up in a pension scheme, but as I said, it allows you to have more control over it, which doesn't necessarily mean you will do great with your choices.

I suspect you are getting confused.  Or are you genuinely saying you somehow don't build up qualifying NI years for State Pension?

zagfles

Are you under the impression that you'll get less state pension if you sal sac?? Your state pension will be identical whether you earn £70k or £63k. It's only affected if your income goes below about £7k.

Marcon

RobHT said:

lisyloo said:

1. £6k is not the same as £7k.

2. no idea what you mean by trust fund. There is no fund for the state pension, do you mean auto enrolment?

3.explain what you mean by state pension

are you in the uk?

1. I didn't get the point though, it's interestingly more, did you mean something else?

2. Let's call it pension fund then, much easier .

3. The state pension is the minimum pension that the state gives you, if you have been working for the minimum amount of years required and if you qualify for the minimum pension age. It's around 600 pounds if I'm not wrong.

Main main point on this is the following, it seems moving the money from the state contributions directly to your fund (the company does it for me for example).
In one way or another, it ends up in a pension scheme, but as I said, it allows you to have more control over it, which doesn't necessarily mean you will do great with your choices.

3. You're wrong, as pointed out above. It's better than that - depending on your age and earnings history, possibly quite a bit better!

RobHT said:

Main main point on this is the following, it seems moving the money from the state contributions directly to your fund (the company does it for me for example).
In one way or another, it ends up in a pension scheme, but as I said, it allows you to have more control over it, which doesn't necessarily mean you will do great with your choices.

What you are describing is 'contracting out' of the state additional pension (not the same thing as salary sacrifice). It was abolished some years ago.
 

RobHT

Dazed_and_C0nfused said:

I suspect you are getting confused.  Or are you genuinely saying you somehow don't build up qualifying NI years for State Pension?

I do build up contribution through NI and state tax.

zagfles said:

Are you under the impression that you'll get less state pension if you sal sac?? Your state pension will be identical whether you earn £70k or £63k. It's only affected if your income goes below about £7k.

I was initially, but now not, if the state pension will be the same, then it makes sense to do salary sacrifice...
I'm around 100k, both me and the employer should benefit from it, but I'm gonna ask before to submit such request.

I also receive RSU shares, this is gonna be the perfect situation for me, if this breakdown is correct: https://frazerjames.co.uk/rsus-a-tech-employees-guide/#how-can-reduce-tax-rsus 

Marcon said:

What you are describing is 'contracting out' of the state additional pension (not the same thing as salary sacrifice). It was abolished some years ago.
 

I was referring to the salary sacrifice itself, which redirects part of the state pension contribution to the private fund that I already use, I think that in every company works in the same way.

Btw, can I take that portion and decide what to do with it? I mean the entire portion in case I use salary sacrifice.
I'd like to invest in more profitable solutions.