New to Salary Sacrifice for a car lease - Could someone advise how it would affect my pension?

mickym

Hi,

My car has been recently written off and whilst id like to get it repaired and on the road, my employer is offering a salary sacrifice scheme with Zenith for a new car which includes insurance, breakdown, maintence cover etc. As the cheaper offers are for EVs, id like to think id be making a saving on my fuel cost too (My current petrol car uses £70per week on fuel).

My salary: £45,000

Car Monthly Payment: £420pm

How do I work out the 'real' monthly payment I will see in my monthly pay? As im in the 20% tax bracket, would it be 20% off the £420pm figure?

Also, I have heard that these types of scheme can affect pensions.

I beleive my pensions contributions are 'standard' with both my employer and I making 5% contributions.

Could anyone explain how i can work out how and if it would affect my pension? Would be interested hearing other people's views on the scheme and if they found them good or bad?

Thanks

jimmo

Salary sacrifice means that you give up part of your salary in exchange for something else (in your case a company car).

On your figures your salary will drop to ( 45,000 - 5040) £39,960.

You will also be taxable on the benefit in kind appropriate to the car you choose.

For pension purposes both your own and your employer's contributions will be based on your revised salary of £39,600 but whether or by how much that may affect your pension depends on how your pension scheme works.

EIM42755 - Salary sacrifice: income tax effects of salary sacrifice - HMRC internal manual - GOV.UK (www.gov.uk)

molerat

Salary sacrifice will reduce your salary by £420 per month, £5040 per year so you will not pay tax or NI on that amount saving you 32%.

An all electric car will have a BIK rate of 2% of the P11D value, say £35000 x 2% = £700 per year taxable.  This is much better than a fossil fuel car which can have a BIK rate of up to 37% so the same value car could be taxed on as much as £12950 !

How your pension is affected is down to how your employer wishes to work it out.  They can use the salary amount pre sacrifice if they wish or they can choose to use the lower salary meaning less in your pot.

Back of a fag packet possible examples using tax codes of 1257L and 1187L reduced by the (£35K) car BIK :

You currently earn £3750 per month pay, £187.50 into your pension made up to £375 by your employer, pay £508.20 tax and £324.34 NI taking home £2735.46.

With the car you earn £3330 per month, pay £166.50 into your pension made up to £333 by your employer, pay £434.60 tax and £273.84 NI taking home £2455.06

The car is therefore reducing your take home by £280.40 per month but you have £42 less going into you pension which you may consider worth making up which will cost you an extra £33.60.

mickym

Thank you so much for your detailed replies. 👍