New Salary Sacrifice pension

ender4

Hi, 

My employer has recently offered to move us a salary sacrifice DC pension rather than the standard DC pension we currently have. 
I know this lowers my 'official salary' because the employer then puts more into the pension on my behalf saving me NI.

Assuming i'm paying 20% income tax and say i'm earning £105 a year and putting 5% (£5) employee contribution into the pension. 
So now i earn £100 and pay 20% income tax (£20) same as before. But now instead of paying NI on £105, i pay NI on £100.

I'm a little confused whether this increases or decreases my actual take home pay that will come into my bank account. 
And what happens to the total amount that goes into my pension - does that stay exactly the same?

Edited - got confused between DC and DB pension, I have defined contribution pension.

Albermarle

If you were paying 20% income tax on £105, you would pay £21 tax.
On £100 , only £20. The £1 goes into your pension, instead of going to HMRC.
Then no NI on the £5.
So your take home pay would increase a little bit.

The exact  amount depends on how you make your £5 pension contribution now. Does it come out of your salary before it is taxed or out of your after tax pay?

MX5huggy

As it’s a DB pension what goes in doesn’t really matter. But are you sure it’s a DB?

what sort of DB is it? Are they going to keep track of your notional salary (that is salary before Salary Sacrifice) to calculate your DB benefits due? 

Dazed_and_C0nfused

ender4 said:

Hi, 

My employer has recently offered to move us a salary sacrifice DB pension rather than the standard DB pension we currently have. 
I know this lowers my 'official salary' because the employer then puts more into the pension on my behalf saving me NI.

Assuming i'm paying 20% income tax and say i'm earning £105 a year and putting 5% (£5) employee contribution into the pension. 
So now i earn £100 and pay 20% income tax (£20) same as before. But now instead of paying NI on £105, i pay NI on £100.

I'm a little confused whether this increases or decreases my actual take home pay that will come into my bank account. 
And what happens to the total amount that goes into my pension - does that stay exactly the same?

Salary sacrifice is relatively unusual for a DB scheme, are you absolutely certain it's DB?

With a DB scheme it's usually irrelevant what gets paid in.

SarahB16

ender4 said:

My employer has recently offered to move us a salary sacrifice DB pension rather than the standard DB pension we currently have. 
I know this lowers my 'official salary' because the employer then puts more into the pension on my behalf saving me NI.

Have you also checked the accrual rate for the new DB pension you are moving to is the same or better? 

For example, you don't want to move from an accrual rate of 1/49 to say 1/65.  

SarahB16

Dazed_and_C0nfused said:

Salary sacrifice is relatively unusual for a DB scheme, are you absolutely certain it's DB?

I'm in a career average DB scheme and it's salary sacrifice.  My pension contributions are deducted from my gross pay thereby reducing the tax and NI I pay.    

You ask a good question though.  The OP needs to ensure this is a DB scheme and not a DC scheme.  

Dazed_and_C0nfused said:

With a DB scheme it's usually irrelevant what gets paid in.

I agree it's irrelevant what gets paid in.  What is more important is how quickly your benefits accrue.  This is why I asked the OP above to ensure the accrual rate has not changed for the worse.   

ender4

Apologies, it’s a DC scheme. Amended the initial post.  So based on the DC scheme, what happens to my take home pay and the amount going into my pension?

Dazed_and_C0nfused

ender4 said:

Apologies, it’s a DC scheme. Amended the initial post.  So based on the DC scheme, what happens to my take home pay and the amount going into my pension?

With salary sacrifice you don't actually pay anything into the pension, you are agreeing to a lower salary in return for additional employer pension contributions.

So you get no pension tax relief on employer contributions but if you are a basic rate taxpayer each £100 that you sacrifice means you avoid paying £20 in income tax and £12 in National Insurance.

MX5huggy

Do you pay student loan repayments? You save those as well with Salary Sacrifice.

to look at another way for every £100 you sacrifice to pension you give up just £68 of take home pay. Then under current rules you get 25% tax free out of the pension and pay your tax rate at the time on the rest. 

Basically SS is a deal only people it doesn’t benefit are those that earn under £12570 because they don’t pay Tax or NI, but because you can’t salary Sacrifice below National Minimum wage this would only effect a few people that work low numbers of hours at rate above NMW. 

Tony4625

Apologies for hijacking  this thread but my wife is considering her options in a few months time when our mortgage finally finishes . She is part time now earning £21k , sacrifices  6% now and her firm matches that plus 10%(22% in total).
My question is can she sacrifice as much as possible  for the next 3 years before retiring as long as not below minimum wage ? and can she ask if  employer NI contributions be added to her pension? 
Any supplied figs  or advice  would be  greatly appreciated, she is basic rate tax payer . 
Thanks 

Dazed_and_C0nfused

It's really a question for her employer.

She can in theory sacrifice down to national minimum wage but the employer may only so x changes per calendar or financial year.

She can ask them to add their NI saving, some employers do, some don't.

Once she has exhausted salary sacrifice she can contribute to a pension herself, no NI saving but 25% is added to whatever she contributes* so still tax efficient.

*Providing she stays within the relevant limits.