NHS Salary Sacrifice & Pension - top back up = no impact?

Webbit_2

Hi,
We are looking to replace our old family car which we have had for 15 years and got our "use" out of. My wife works for the NHS and there are some salary sacrifice leasing deals that could get us into an electric car for what seems on the face of it a reasonable amount... annually less than I have spent on repairs my old car over the last couple of years!

My only concern is the pension sacrifice. In my simple mind, if, we topped back up the pension sacrifice deduction that would otherwise have been made into my wife's pension pot does the net affect mean no impact on my wife's pension?

Thanks,

 

Andy_L

I don't think there is a method for you to " [top] back up the pension sacrifice deduction". ie you cannot avoid the pension hit as a result of salary sacrifice

Dazed_and_C0nfused

In my simple mind, if, we topped back up the pension sacrifice deduction that would otherwise have been made into my wife's pension pot does the net affect mean no impact on my wife's pension?

She almost certainly doesn't have a pension pot.

She wil be accruing a pension under the pension scheme rules.

The NHS have a variety of options for making additional pension contributions.

https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension

Don't forget to factor in the extra tax she would be paying by having a company car.

Sarahspangles

Dazed_and_C0nfused said:

She almost certainly doesn't have a pension pot.

What causes confusion is that the NHSBSA pension documentation does refer to pension pots. So there is a concept of an ‘NHS pension pot’ even if it’s different from a DC pot.

For example:

The Joiners and Eligibility Guide.
https://www.nhsbsa.nhs.uk/sites/default/files/2020-11/NHS%20Pensions%20Employer%20guide%20to%20joiners%20and%20eligibility-20201120-%28V1%29%20%20%20.pdf

The 2015 Member’s Guide booklet - the diagram on p6 is used in induction.
https://www.nhsbsa.nhs.uk/sites/default/files/2015%20Members%20Guide%20%28V11%29%2007.2021.pdf

OldBeanz

There should be  NHS online calculators which will allow you to see how much it would cost to buy the equivalent pension as is being lost through SS (Inc NI savings in equation).

Webbit_2

Cheers, yes aware it's a DB scheme rather than DC, I use "pot" in the loosest sense but perhaps am still over simplifying as my own pension is DC and I would simply top up the missing pension as a result of the sacrifice to get me back square again within the pension fund. However reading further with DB schemes it isn't that simple and I'm trying to work out whether taking on a car lease will reduce the amount of £pension my wife will have available come retirement. She is on the 2008 scheme with c20 years service. 

I have been trying to find a calculator without success but have now come across some information on the annual allowance which is perhaps the main issue where a tax charge is generated IF you stop leasing a car and some other complicated rules about how many years off from retirement. She's a Nurse so not a very high earner and even with her contributions + a benefit of the type of car we will buy is unlikely to breach the £60k annual pension allowance, however collective compound growth may breach it. The various online blogs talk through for Doctors where this can become an expensive issue.

We probably need to find some specialist advice as it's not as simple as I first thought i.e. top up what is lost through sacrifice. 

Is starting to seem like Jam today or Jam tomorrow rather than a true benefit but more digging required.

Moonwolf

It is a complex calculation. It depends how long you have until retirement and how long you think you might live for.  

There is also the thought that you are saving tax on the car, however you would be saving tax on the pension contributions but the amount you pay in pension doesn't directly relate to how much benefit you get, I really can't decide if this counts as a win or not.

I mention below in real terms, i.e. ignoring inflation.  Adding inflation makes the calculation more even complicated, the car would also go up in cost by an inflation figure not necessarily the same as CPI, but salaries haven't kept pace with inflation recently so perhaps this underestimates the cost to you.

As the 2015 scheme is 1/54ths then each £100 a month sacrificed will cost you £22.22 a year of final pension. (12 months * 100 / 54)

This is inflation linked ("treasury order"/CPI) but it also grows by 1.5% points over that, so after 10 years it would be worth £25 a year pension sacrificed in today's money.  As this is above inflation growth, the further you are from retirement the worse it is. If you had 21 years to retirement the lost value in real terms would be around £30 a year.

If we take the 10 year, £25 figure and guess your wife will live 18 years after retirement, that is arguably £450 of pension you are sacrificing, and £8.30 a year spouses pension if you outlive her.

On the other hand, that many years in the future, the pension environment might be totally different.

In the end, as well as how much it saves, it depends on your attitude to money now or money in the future, how much you need the car and what you think your finances will look like in years to come.

As for ways to increase pension at a later date, I have a reply here that might help https://forums.moneysavingexpert.com/discussion/comment/78669411#Comment_78669411

Webbit_2

Thank you Moonwolf, insightful. I shall read the linked post too. Actually I need to double check but my wife may well be on the 1995 scheme (she's 45). She has a min of 10 years before retirement thought that needs thinking about when is best to take as she will probably continue at, say 2 days a week, post 55, assuming we have paid our morgage off etc. 

Historically I have bought nearly new cars outright or with a small loan and kept for 10 years + but that doesn't seem possible at the prices cars are today and I certainly wouldn't want to put £40k+ into an electric car where technology is moving so fast and my purchase will be obsolete in 3, let alone 10 years. My current car I've had for 15 years and bought for £15k at 6 mths old/3k on the odo. It has cost me nothing other servicing except for the last 2 years where it's become more needy.

Moonwolf

Webbit_2 said:

Thank you Moonwolf, insightful. I shall read the linked post too. Actually I need to double check but my wife may well be on the 1995 scheme (she's 45). She has a min of 10 years before retirement thought that needs thinking about when is best to take as she will probably continue at, say 2 days a week, post 55, assuming we have paid our morgage off etc. 

I don't know as much about the 1995 scheme but I did think that salary sacrifice is only relevant in the last three years of employment as it is a final salary scheme.  I haven't kept up to date with the most recent changes and the McCloud judgement.  

Pat38493

Am I not right in thinking the 1995 no longer exists in terms of continuing contributions - didn't it stop in April 2022?

Moonwolf

Pat38493 said:

Am I not right in thinking the 1995 no longer exists in terms of continuing contributions - didn't it stop in April 2022?

McCloud messed it all up for me, it is enough effort to keep up with pensions rules that directly impact me.  I thought there were people with some form of protection.