Salary Sacrifice NHS 2015 Scheme

Moonwolf

There are still a couple of salary sacrifice options available for NHS staff.  Some NHS organisations support the cycle to work scheme and some electric car schemes are still tax efficient.

However, it seems difficult to judge the real impact of salary sacrifice.  Does anyone have any thoughts.

I've made a stab below but happy to have my calculations or logic pulled apart.  I'm disinclined to consider inflation though, in the end if £1.50 buys a loaf of bread now and your money has doubled over time but a loaf of bread is now £3.00 nothing has changed and any more subtle predictions will just be bad guesses.  

On the face of it, sacrificing salary of £225 a month for a higher rate taxpayer would save £94 a month in tax and NI and then there are pension payment reductions as well so the net reduction in take home might be just over £100 a month.

As the 2015 scheme is 1/54 then that would lose £50 a year in pension, if the average lifespan after retirement at 67 is 18 years that would be £900 in lost pension. 

That is ignoring inflation, in fact it could be a bit more than that as the career average pots grow by 0.5% over inflation while the worker works for the NHS so someone who sacrificed £50 of pension 20 years before retirement could be sacrificing just over £55 a year of pension, £50 * (1.005)^20, in real terms so nearly £1000 of pension lost over 18 years.

That seems a lot but what should it be compared against?  The cost of not making the purchase or the cost of not making the saving? 

If you were going to make the purchase anyway at £225 a month for a year, so instead of it costing full tariff you were able to save the £125 a month difference over the year and invest it, you might double it in real terms to £3,000 over 20 years.  Is that comparable?

thanks

Moonwolf

peter3hg

As a minor point the revaluation is CPI plus 1.5% not 0.5%, so the £50 would grow to £67 over 20 years in real terms, not £55

Marcon

Moonwolf said:

On the face of it, sacrificing salary of £225 a month for a higher rate taxpayer would save £94 a month in tax and NI and then there are pension payment reductions as well so the net reduction in take home might be just over £100 a month.

Salary sacrifice gives an NI saving. It doesn't give you a bigger income tax saving.

The NHS scheme is net pay (ie pension contributions are taken from gross pay before tax), so take home pay isn't impacted either way.

amanda1024

Marcon said:

Moonwolf said:

On the face of it, sacrificing salary of £225 a month for a higher rate taxpayer would save £94 a month in tax and NI and then there are pension payment reductions as well so the net reduction in take home might be just over £100 a month.

Salary sacrifice gives an NI saving. It doesn't give you a bigger income tax saving.

The NHS scheme is net pay (ie pension contributions are taken from gross pay before tax), so take home pay isn't impacted either way.

I thought the whole point of the salary sacrifice cycle etc schemes was the income tax saving? If it’s just the 2% NI there’s very little benefit for higher rate taxpayers

Marcon

amanda1024 said:

Marcon said:

Moonwolf said:

On the face of it, sacrificing salary of £225 a month for a higher rate taxpayer would save £94 a month in tax and NI and then there are pension payment reductions as well so the net reduction in take home might be just over £100 a month.

Salary sacrifice gives an NI saving. It doesn't give you a bigger income tax saving.

The NHS scheme is net pay (ie pension contributions are taken from gross pay before tax), so take home pay isn't impacted either way.

I thought the whole point of the salary sacrifice cycle etc schemes was the income tax saving? If it’s just the 2% NI there’s very little benefit for higher rate taxpayers

OP's question is about the NHS 2015 scheme and salary sacrifice. There's no income tax saving on pension contributions paid this way, because they (normally) already get full tax relief.

You are of course correct about other 'approved' salary sacrifice schemes giving an income tax saving where salary is given up in exchange for a non-taxable benefit.

Sarahspangles

One of my NHS employers offers a lease car scheme, the information provided explains the impact on pensionable pay but colleagues have seemed more concerned about having to make alternative arrangements if they move on from the role.