NHS AVC Schemes confusion - not sal sac?

GalloB

I am 50 and am planning to retire at 60 with in the 1995 NHS pension scheme, but want to build some capital between now and 65 (am going to take an ERBO so I can take my 2015 scheme benefits early without reduction).

I've looked into the NHS AVCs, there are several threads on here that have also been useful but there seems to be some conflicting information, or I am not understanding what I am reading.

The Standard Life website says:
Payments into your pension plan will be made by Salary Exchange. This means payments will be taken from your salary before tax and National Insurance (NI) are calculated. You and your employer may pay less NI and you won't need to reclaim any tax relief from the government manually. It's important to remember that Salary Exchange isn't right for everyone. It's a change to your terms of employment and could affect your entitlement to state benefits or your ability to borrow.

So I thought - that has to be sal sac, so need to be careful of reduction in pensionable pay. So I emailed SBS who deal with the scheme admin and they said:

If we were to receive a request from Standard Life to add AVC`s to your pay your deductions would be taken from your gross pay. The deduction would show on the right-hand side of your payslip and it is deducted before tax and NI is calculated. The AVC`s is not a salary sacrifice scheme.

So now I'm totally confused. Deduction from gross pay but not sal sac. Can anyone help me understand? I'm trying to decide between this and a Vanguard SIPP. The NHS scheme would be less hassle but if they don't even understand how to administer it, it doesn't inspire confidence. 

Dazed_and_C0nfused

GalloB said:

I am 50 and am planning to retire at 60 with in the 1995 NHS pension scheme, but want to build some capital between now and 65 (am going to take an ERBO so I can take my 2015 scheme benefits early without reduction).

I've looked into the NHS AVCs, there are several threads on here that have also been useful but there seems to be some conflicting information, or I am not understanding what I am reading.

The Standard Life website says:
Payments into your pension plan will be made by Salary Exchange. This means payments will be taken from your salary before tax and National Insurance (NI) are calculated. You and your employer may pay less NI and you won't need to reclaim any tax relief from the government manually. It's important to remember that Salary Exchange isn't right for everyone. It's a change to your terms of employment and could affect your entitlement to state benefits or your ability to borrow.

So I thought - that has to be sal sac, so need to be careful of reduction in pensionable pay. So I emailed SBS who deal with the scheme admin and they said:

If we were to receive a request from Standard Life to add AVC`s to your pay your deductions would be taken from your gross pay. The deduction would show on the right-hand side of your payslip and it is deducted before tax and NI is calculated. The AVC`s is not a salary sacrifice scheme.

So now I'm totally confused. Deduction from gross pay but not sal sac. Can anyone help me understand? I'm trying to decide between this and a Vanguard SIPP. The NHS scheme would be less hassle but if they don't even understand how to administer it, it doesn't inspire confidence. 

I don't recollect anyone ever mentioning the NHS using salary sacrifice for pension contributions before.

They usually operate the net pay method so you immediately receive the tax saving by having reduced taxable pay.  But there is no NI saving.

And they are employee contributions not employer, which salary sacrifice would be.

GalloB

Dazed_and_C0nfused said:

GalloB said:

I am 50 and am planning to retire at 60 with in the 1995 NHS pension scheme, but want to build some capital between now and 65 (am going to take an ERBO so I can take my 2015 scheme benefits early without reduction).

I've looked into the NHS AVCs, there are several threads on here that have also been useful but there seems to be some conflicting information, or I am not understanding what I am reading.

The Standard Life website says:
Payments into your pension plan will be made by Salary Exchange. This means payments will be taken from your salary before tax and National Insurance (NI) are calculated. You and your employer may pay less NI and you won't need to reclaim any tax relief from the government manually. It's important to remember that Salary Exchange isn't right for everyone. It's a change to your terms of employment and could affect your entitlement to state benefits or your ability to borrow.

So I thought - that has to be sal sac, so need to be careful of reduction in pensionable pay. So I emailed SBS who deal with the scheme admin and they said:

If we were to receive a request from Standard Life to add AVC`s to your pay your deductions would be taken from your gross pay. The deduction would show on the right-hand side of your payslip and it is deducted before tax and NI is calculated. The AVC`s is not a salary sacrifice scheme.

So now I'm totally confused. Deduction from gross pay but not sal sac. Can anyone help me understand? I'm trying to decide between this and a Vanguard SIPP. The NHS scheme would be less hassle but if they don't even understand how to administer it, it doesn't inspire confidence. 

I don't recollect anyone ever mentioning the NHS using salary sacrifice for pension contributions before.

They usually operate the net pay method so you immediately receive the tax saving by having reduced taxable pay.  But there is no NI saving.

And they are employee contributions not employer, which salary sacrifice would be.

I think that's right - previous threads do seem to say it's not salary sacrifice. I just don't understand how deductions from gross pay before tax and NI can work if it isn't. 

Does this mean that the Standard Life information about the NHS scheme is incorrect? They clearly say the scheme is salary exchange. That's the same as salary sacrifice isn't it?

GalloB

GalloB said:

Dazed_and_C0nfused said:

GalloB said:

I am 50 and am planning to retire at 60 with in the 1995 NHS pension scheme, but want to build some capital between now and 65 (am going to take an ERBO so I can take my 2015 scheme benefits early without reduction).

I've looked into the NHS AVCs, there are several threads on here that have also been useful but there seems to be some conflicting information, or I am not understanding what I am reading.

The Standard Life website says:
Payments into your pension plan will be made by Salary Exchange. This means payments will be taken from your salary before tax and National Insurance (NI) are calculated. You and your employer may pay less NI and you won't need to reclaim any tax relief from the government manually. It's important to remember that Salary Exchange isn't right for everyone. It's a change to your terms of employment and could affect your entitlement to state benefits or your ability to borrow.

So I thought - that has to be sal sac, so need to be careful of reduction in pensionable pay. So I emailed SBS who deal with the scheme admin and they said:

If we were to receive a request from Standard Life to add AVC`s to your pay your deductions would be taken from your gross pay. The deduction would show on the right-hand side of your payslip and it is deducted before tax and NI is calculated. The AVC`s is not a salary sacrifice scheme.

So now I'm totally confused. Deduction from gross pay but not sal sac. Can anyone help me understand? I'm trying to decide between this and a Vanguard SIPP. The NHS scheme would be less hassle but if they don't even understand how to administer it, it doesn't inspire confidence. 

I don't recollect anyone ever mentioning the NHS using salary sacrifice for pension contributions before.

They usually operate the net pay method so you immediately receive the tax saving by having reduced taxable pay.  But there is no NI saving.

And they are employee contributions not employer, which salary sacrifice would be.

I think that's right - previous threads do seem to say it's not salary sacrifice. I just don't understand how deductions from gross pay before tax and NI can work if it isn't. 

Does this mean that the Standard Life information about the NHS scheme is incorrect? They clearly say the scheme is salary exchange. That's the same as salary sacrifice isn't it?

Sorry I meant to add - any idea why SBS are telling me the deduction is from gross pay if it is supposed to be net pay?

Sarahspangles

I thought:

NHS Pension contribution (%age) is calculated on your gross pay,
Your AVC is then also taken off your gross pay - it’s additional, not instead of i.e. your Pensionable Pay is not affected by either pension contribution

This leaves you with Taxable Pay, on which your monthly income tax is calculated.

It’s not Salary Sacrifice because you also pay NI.

There are Salary Sacrifice schemes in the NHS for Cycle to Work etc. and as those do affect Pensionable Pay, it’s always discussed in the information packs.

 

Moonwolf

With the ERRBO, just be aware that they can put up your rate. This was something I wasn't aware of but having signed up years ago and done the calculations I now find my rate for a 2 year reduction (67-65) is going up from 2.84% to 3.33%.  I think it still costs in particularly as I will be retiring soon and I have already been paying in for nearly 10 years but it might not have.  Just something to think about.

My understanding is that it is that you will save both income tax at your marginal rate and NI and I always thought it was salary sacrifice so the NHS would save on employers NI as well, so I am just as confused as you.  I pay into an old BT scheme from taxed income (and expect to make adjustments for HRT if necessary) as I felt it was a better deal, even allowing for NI, though it is Standard Life as well.

Dazed_and_C0nfused

GalloB said:

GalloB said:

Dazed_and_C0nfused said:

GalloB said:

I am 50 and am planning to retire at 60 with in the 1995 NHS pension scheme, but want to build some capital between now and 65 (am going to take an ERBO so I can take my 2015 scheme benefits early without reduction).

I've looked into the NHS AVCs, there are several threads on here that have also been useful but there seems to be some conflicting information, or I am not understanding what I am reading.

The Standard Life website says:
Payments into your pension plan will be made by Salary Exchange. This means payments will be taken from your salary before tax and National Insurance (NI) are calculated. You and your employer may pay less NI and you won't need to reclaim any tax relief from the government manually. It's important to remember that Salary Exchange isn't right for everyone. It's a change to your terms of employment and could affect your entitlement to state benefits or your ability to borrow.

So I thought - that has to be sal sac, so need to be careful of reduction in pensionable pay. So I emailed SBS who deal with the scheme admin and they said:

If we were to receive a request from Standard Life to add AVC`s to your pay your deductions would be taken from your gross pay. The deduction would show on the right-hand side of your payslip and it is deducted before tax and NI is calculated. The AVC`s is not a salary sacrifice scheme.

So now I'm totally confused. Deduction from gross pay but not sal sac. Can anyone help me understand? I'm trying to decide between this and a Vanguard SIPP. The NHS scheme would be less hassle but if they don't even understand how to administer it, it doesn't inspire confidence. 

I don't recollect anyone ever mentioning the NHS using salary sacrifice for pension contributions before.

They usually operate the net pay method so you immediately receive the tax saving by having reduced taxable pay.  But there is no NI saving.

And they are employee contributions not employer, which salary sacrifice would be.

I think that's right - previous threads do seem to say it's not salary sacrifice. I just don't understand how deductions from gross pay before tax and NI can work if it isn't. 

Does this mean that the Standard Life information about the NHS scheme is incorrect? They clearly say the scheme is salary exchange. That's the same as salary sacrifice isn't it?

Sorry I meant to add - any idea why SBS are telling me the deduction is from gross pay if it is supposed to be net pay?

Pension terminology is confusing!

Net pay contributions work in a very similar way to salary sacrifice, you have less taxable income.

But they don't reduce income for NI purposes.

Relief at source is the other main method.  RAS contributions don't reduce your taxable income but you get basic rate relief added to the net contribution.

GalloB

I followed up with another question to SBS (the part of the NHS who administers the pension scheme) and they replied with some more info that I think is pretty definitive. As others have suggested, the NHS AVC schemes are NOT salary sacrifice, so the information currently on the Standard Life website is incorrect.

Reply from SBS below:

If you join the AVC scheme this does not reduce your pensionable pay this remains the same.

If you join the AVC scheme this will reduce the amount of tax you pay as your AVC deductions are taken from your gross pay before PAYE deductions are calculated

If you join the AVC scheme this will not reduce the amount of National insurance you pay as your AVC deduction is not taken into account before NI contributions are calculated.  

I think that given the charges are about 0.6% and I'm a bit limited to when I can take the benefits, a vanguard SIPP might be a better option. The only disadvantage I can see is that I need to claim my higher rate tax back from HMRC every year, but that only needs a letter so isn't that difficult to do.