SMART (salary sacrifice) vs NOT SMART

Mistermeaner

Hi

My company offers 2 ways to contribute to its DC pension; 1 being 'SMART' (salary sacrifice) for which you get a 1% higher company contribution or 'NOT SMART' (it doesn't have a name) which isn't salary sacrifice and for which you get a lower company contribution.

I'm confused as to why these are even options? Why would anyone want to NOT salary sacrifice and get lower contributions?

The scheme is being amended and company contributions going up (wow!) and both the SMART and other options will have the same company contribution - and we will still be offered the choice of SMART or not smart

Can anyone clarify for me why someone might choose not to salary sacrifice?

Dazed_and_C0nfused

Why would you opt for salary sacrifice if you were earning say £10k and had no other taxable income?

You don't get any pension tax relief with salary sacrifice (they are employer contributions) so making a relief at source contribution where 25% is added by the pension company would be much better from a financial perspective.

Sounds like the employer is offering the best of both worlds

Mistermeaner

ah ok - that makes sense.... although the type of company this is and the jobs there are no one is earning under 30K

MX5huggy

Further to those that don’t earn enough to pay tax. You can only Salary Sacrifice down to the National Minimum Wage so the low paid won’t be able to take advantage of “SMART”.

Marcon

Mistermeaner said:

ah ok - that makes sense.... although the type of company this is and the jobs there are no one is earning under 30K

If you have any part timers (or might in the future have them), they could have earnings which are too low to pay tax.

Albermarle

I'm confused as to why these are even options?

Probably because existing employees will have older employment contracts that do not mention salary sacrifice. So changing to salsac needs to be in agreement with the employee, with something in writing as it is a change in employment terms and conditions.

WYSPECIAL

It's a change of contract as you are agreeing to a lower salary in exchange for them paying your pension contributions.
Employee needs to agree to the new contract.

Preacher64

In my case, when the Smart option was introduced, you could either remain in the existing scheme with an NRA of 60 and an actuarial reduction of 2% per year or move to the new scheme which had an NRA of 65 and an actuarial reduction of 4 - 5% per year.

For most of the older employees, the new scheme did not appear to be a particularly attractive option.

For those starting out and with a salary that took them over the tax threshold and all other considerations being equal, the Smart scheme would seem the sensible choice.

Edit to show “did not appear”!