Sal Sac or Net Contribution.

catladyLou

Hi, 
hoping for some opinions on this one as im not too hot on pensions!.
My company have today sent the below to a number of employees, due to the NMW increase and the fact they wont give pay rises (last one 10 years ago) they have said i dont earn enough to qualify now for sal sac scheme. Does anyone know how this will affect take home pay and tax relief. When we first started sal sac we were sold it based upon so called 'tax benefits'??


Letter from Co. below

We've previously been in touch with you about our annual pension review, which has now been completed. 

To ensure compliance with the national minimum wage, we need to transition you from a salary sacrifice scheme to a net pay scheme.

 There will be no change to the existing set up of your pension, your existing contribution percentages will not change, you will be able to increase and decrease your pension contributions as per your current scheme, and we will continue to make the payments into your pension as normal. This is purely a change in how your contributions are collected. 

These changes will take effect immediately.

molerat

The difference to you is that you will pay NI on the pension contribution amounts if earnings are above £1048 pm / £242 pw

Marcon

catladyLou said:

Hi, 
hoping for some opinions on this one as im not too hot on pensions!.
My company have today sent the below to a number of employees, due to the NMW increase and the fact they wont give pay rises (last one 10 years ago) they have said i dont earn enough to qualify now for sal sac scheme. Does anyone know how this will affect take home pay and tax relief. When we first started sal sac we were sold it based upon so called 'tax benefits'??


Letter from Co. below

We've previously been in touch with you about our annual pension review, which has now been completed. 

To ensure compliance with the national minimum wage, we need to transition you from a salary sacrifice scheme to a net pay scheme.

 There will be no change to the existing set up of your pension, your existing contribution percentages will not change, you will be able to increase and decrease your pension contributions as per your current scheme, and we will continue to make the payments into your pension as normal. This is purely a change in how your contributions are collected. 

These changes will take effect immediately.

Salary sacrifice only impacts on NI - assuming you were earning enough to pay NI in the first place. Your take home pay will be reduced by whatever amount of employee's NI is deducted in future.

'Net pay' means your pension contribution is deducted from your gross salary, before the remaining salary is then taxed, so there won't be any impact on take home pay from that (NI is still payable on the whole gross salary).

Albermarle

and the fact they wont give pay rises (last one 10 years ago)

That is almost unbelievable. Suggest you look for another job ! 

westv

It is effectively a pay cut as it will cost more to achieve the same level of pension contribution.

xylophone

and the fact they wont give pay rises 

You love this particular job?

Marcon

Albermarle said:

and the fact they wont give pay rises (last one 10 years ago)

That is almost unbelievable. Suggest you look for another job ! 

But the employer has given pay rises - they just happen to be in line with minimum wage requirements. Quite a lot of employers do precisely that. 

gravel_2

It reads more like NMW has caught up with whatever OP is paid and that is why salary sacrifice is no longer an option.

MX5huggy

National Minimum Wage is £11.44 are you not being paid much above this? 

NMW was £6.50 in 2014 for comparison. 

Sarahspangles

gravel_2 said:

It reads more like NMW has caught up with whatever OP is paid and that is why salary sacrifice is no longer an option.

Agree, there are plenty of employers allowing their pay levels to drift down to NMW. Particularly where their competitors have staff on zero hours contracts who don’t get sick pay, pension contributions and so on.

sevenhills

MX5huggy said:

National Minimum Wage is £11.44 are you not being paid much above this? 

NMW was £6.50 in 2014 for comparison. 

I am wanting to use SS in my final year or two, but I get around £13+ an hour, so this could be an obstacle.

But I do see refusing low-paid earners excess to SS to be unfair, we know that I receive above the NMW as do my colleagues.

I read about workers getting cars etc on SS, is all this legal, tax avoidance?