Salary sacrifice concern

MallyGirl

I think you still need to do a bit of reading.
By salary sacrifice you can avoid paying some NI (as you earn less) but this does not get redirected to a private fund. NI is not just a contribution towards state pension.
The money that is sal sac'ed into a pension fund can be invested in the way you choose (within the choices offered by that pension provider).

MX5huggy

You are using strange terminology and mixing it up.

When you Salary Sacrifice HMRC never see that you earned that money so you don’t pay Income Tax or Employees National Insurance on it. Your Employer also doesn’t pay Employers NI on the sacrificed money. They may choose to pass this on to you (as illustrated above) in additional pension contribution (mine doesn’t they keep it as a benefit of offering Salary Sacrifice). 

With your earnings your NI record for each year will be complete it makes no difference if you earn £17000 or £70000 a tick goes in the box and you are credited one more year. Go to https://www.gov.uk/check-state-pension to see how many years you have got and how many more you need for full state pension. Even when you have all the years you need you have to keep paying NI on earned income until reach State Retirement Age. 

The money Sacrificed to the pension is just treated as any other pension contribution, you can invest it within the scheme selected by your employer. Which maybe whole of market or a limited set of funds (I have a choice of 7 and one of them is just cash). You maybe allowed to move money out of the default scheme to another pension provider, but many don’t allow this while working and contributing to the existing scheme. 

RobHT

MallyGirl said:

I think you still need to do a bit of reading.
By salary sacrifice you can avoid paying some NI (as you earn less) but this does not get redirected to a private fund. NI is not just a contribution towards state pension.
The money that is sal sac'ed into a pension fund can be invested in the way you choose (within the choices offered by that pension provider).

Surely I need to know more, it works much differently from the countries where I've been before...

So, how do I redirect that little additional amount into a private fund? (basically the one I'm already using)

Of course I can change the plan of my pension pot, but usually it's better to leave it to the company default plan, so they can better manage the expectations, which 90% of cases it's the best choice. 

grumiofoundation

RobHT said:

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.

As said you are mixing up terminology.

You have not correctly described salary sacrifice - have you read the link posted on the first page of this thread?  

By using salary sacrifice you are not reducing the amount of state pension you will get. 

 

Malthusian

RobHT said:

So, how do I redirect that little additional amount into a private fund? (basically the one I'm already using)

Ask your employer. If they allow salary sacrifice, all the logistics are at their end - they reduce your salary by the amount you negotiate and pay more into a pension for you (usually the workplace pension you already have).

Most employers will only pay into the workplace plan. There is nothing stopping you transferring the funds away after that, but you need to ensure you keep the workplace plan open to receive ongoing contributions.

There is no "State Pension contribution". What you are saving is National Insurance. It is an additional income tax and has nothing to do with the State Pension. The Government likes to pretend it does which is what is causing confusion and creating this false idea that you are somehow redirecting money from your State Pension to a private pension. Forget about the State Pension, for practical purposes it has nothing to do with your salary sacrifice arrangement.

(As others have said, salary sacrifice could in theory effect eligiblity for State Pension if you sacrificed so much salary you ended up below the "lower earnings limit" i.e. £6,240pa - however for most people, minimum wage law and their own living costs would prevent them getting near that.)

Of course I can change the plan of my pension pot, but usually it's better to leave it to the company default plan, so they can better manage the expectations, which 90% of cases it's the best choice. 

If you can pick a "more profitable solution" for your salary sacrifice contributions it should also work for the rest of your pension.

RobHT

grumiofoundation said:

RobHT said:

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.

As said you are mixing up terminology.

You have not correctly described salary sacrifice - have you read the link posted on the first page of this thread?  

By using salary sacrifice you are not reducing the amount of state pension you will get. 

 

Do you mean this link? https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/salary-sacrifice-and-your-pension

So why I've been paying more to get the same state pension one day??
Can I claim these money back? I guess no.
I'm not able to understand why the state allows me to contribute more by default, but it offers an option to pay less in order to get the same state pension.........
Does it make any sense to you?

I have a doubt here:
If you’re in a defined contribution scheme, you can only get a refund of your contributions if you opt out of or leave the scheme within 30 days of joining it. As these contributions will be made by your employer, if you opt out or leave after 30 days – your pot will remain invested and you won’t be able to access the money until the age of 55 (57 from 2028).

Does it mean if I leave the company too?

QrizB

RobHT said:

So why I've been paying more to get the same state pension one day??

Because it's a tax on earned income, just like income tax. The more you earn, the more you pay.

It would make more sense (and be simpler) just to add it onto income tax but politically that's awkward.

Can I claim these money back? I guess no.

No, you can't. It's just another income tax.

I'm not able to understand why the state allows me to contribute more by default, but it offers an option to pay less in order to get the same state pension......... Does it make any sense to you?

You aren't "contributing", you're paying tax.

MX5huggy

If you leave the company, your pension contributions will remain invested with the pension company (not the company you work for). You could if you wanted move this pension to a new pension, maybe to the pension provided with a new job or another pension. But in all cases you can’t access the money till you are 55 /58. 

Malthusian

RobHT said:

So why I've been paying more to get the same state pension one day??

Yes. Same as you've been paying more to get the same NHS health benefits, police protection and fire brigade coverage.

National Insurance is a tax. For some people, paying more NI = more State Pension. You are not one of them. Due to your employment status and income, NI has nothing to do with your State Pension. It goes towards paying the State Pensions of people who have already retired.

If you’re in a defined contribution scheme, you can only get a refund of your contributions if you opt out of or leave the scheme within 30 days of joining it. As these contributions will be made by your employer, if you opt out or leave after 30 days – your pot will remain invested and you won’t be able to access the money until the age of 55 (57 from 2028).

Does it mean if I leave the company too?

Yes. Bear in mind that reclaiming the contributions may be a silly idea anyway, as if your pension includes "employer matching", you would be handing part of your remuneration back to the employer.

MX5huggy said: But in all cases you can’t access the money till you are 55 /58.  

55 currently and 57 from 2028. A further increase to 58 is expected at some point but is not current or proposed law.

RobHT

QrizB said:

RobHT said:

I'm not able to understand why the state allows me to contribute more by default, but it offers an option to pay less in order to get the same state pension......... Does it make any sense to you?

You aren't "contributing", you're paying tax.

I didn't understand what do you mean...
Of course if I gain I pay taxes... I'm wondering how the state asks me for more but allowing a custom option to opt out such extra taxes that I won't see back otherwise.