Difference between AVC and SCAVCs (shared cost AVCs/Salary Sacrifice) - LGPS linked?

MX5huggy

joseph80 said:

So for me as an employee (paying 40% tax) I guess it’s the difference between 40% tax/NI relief and 42% tax/NI relief? 

So a £500 monthly contribution for example would cost me £290 (SCAVC) or £300 (AVC). 

I’m wondering whether it is worth the effort of my employer setting up a SCAVC scheme as opposed to employees just having access to the standard AVC pot? Although I can see there could still be savings (albeit fairly small) for the employer. 

The employer saving is currently 13.8% rising to 15% in April. Not insignificant. And basic rate tax payers  save 8% NI. Which brings up the next point. 

Because NI is calculated over pay periods not annually your better to make lumpy salary sacrifice payments than the same every month. 

joseph80

MX5huggy said:

joseph80 said:

So for me as an employee (paying 40% tax) I guess it’s the difference between 40% tax/NI relief and 42% tax/NI relief? 

So a £500 monthly contribution for example would cost me £290 (SCAVC) or £300 (AVC). 

I’m wondering whether it is worth the effort of my employer setting up a SCAVC scheme as opposed to employees just having access to the standard AVC pot? Although I can see there could still be savings (albeit fairly small) for the employer. 

The employer saving is currently 13.8% rising to 15% in April. Not insignificant. And basic rate tax payers  save 8% NI. Which brings up the next point. 

Because NI is calculated over pay periods not annually your better to make lumpy salary sacrifice payments than the same every month. 

Thank you - I'm gradually getting my head around this!

Just to confirm, for a higher rate tax payer they would save 2% NI?

Would you mind explaining in a little more detail your comment about it being better to make lumpy SS payments than the same every month - just to help me get my head around the workings? Thank you again. 

Dazed_and_C0nfused

joseph80 said:

MX5huggy said:

joseph80 said:

So for me as an employee (paying 40% tax) I guess it’s the difference between 40% tax/NI relief and 42% tax/NI relief? 

So a £500 monthly contribution for example would cost me £290 (SCAVC) or £300 (AVC). 

I’m wondering whether it is worth the effort of my employer setting up a SCAVC scheme as opposed to employees just having access to the standard AVC pot? Although I can see there could still be savings (albeit fairly small) for the employer. 

The employer saving is currently 13.8% rising to 15% in April. Not insignificant. And basic rate tax payers  save 8% NI. Which brings up the next point. 

Because NI is calculated over pay periods not annually your better to make lumpy salary sacrifice payments than the same every month. 

Thank you - I'm gradually getting my head around this!

Just to confirm, for a higher rate tax payer they would save 2% NI?

Would you mind explaining in a little more detail your comment about it being better to make lumpy SS payments than the same every month - just to help me get my head around the workings? Thank you again. 

Tax is ultimately looked at as the year as a whole.

NI is only calculated per pay period.

So if you can manage to manipulate things in the right way you can avoid paying 40% tax and 8% NI in particular months (or more probably a mix of 2% and 8% NI).

MX5huggy

To keep it simple let’s say you earn £60k and the higher rate Tax and NI is paid on £50k plus. You Salary sacrifice £10k so you don’t pay any 40% tax or 2% NI. 

You pay 20% tax and 8% NI on the £38k (£12k tax tree allowance) £10640 tax (£7600) and NI (£3040) paid = take home pay of £39360 + £10000 into AVC. 

Divide it all by 12 to get monthly figures. £5000 per month salary sacrifice £833, take home = £3280. 

You need to receive national minimum wage or more after salary sacrifice let’s say that’s £1600 per month (it depends on how many hours you work per month). 

So the max you can sacrifice in a month is £5000 - 1600 = 3400. So to Sacrifice £10000 over the year we could sacrifice £3333 per month for just 3 months. So Gross pay of £1667 for 3 months you pay 8% NI on £667 =  £53.36 NI. The other 9 months no Salary sacrifice so £5000 of which £1000 no NI is paid on then £3167 pays at 8% = £253.36 and £833 pays at 2% = £16.66 total monthly NI = £270. NI payed in the year = £53.36x3 + £270x9= 160.08+2430 = £2590.08

NI saving is therefore £3040-£2590= £450. 

Income tax is the same so you get take home pay of £39810 plus £10000 into your AVC. 

@Dazed_and_C0nfused will pull this apart if I’ve got it wrong. 

AlanP_2

joseph80 said:

So for me as an employee (paying 40% tax) I guess it’s the difference between 40% tax/NI relief and 42% tax/NI relief? 

So a £500 monthly contribution for example would cost me £290 (SCAVC) or £300 (AVC). 

I’m wondering whether it is worth the effort of my employer setting up a SCAVC scheme as opposed to employees just having access to the standard AVC pot? Although I can see there could still be savings (albeit fairly small) for the employer. 

Looking at this comment then I would suggest that the OP finds out whether an SCAVC contribution is even an option before working out when to schedule the payments for to minimise NI.

lastbigspender

So if I was to setup a SCAVC for £100 p/m it says I will pay £72.08 - is £72.08 the amount that will be taken from my gross pay or net pay?

Plus does the employer make up the differnece?

Dazed_and_C0nfused

lastbigspender said:

So if I was to setup a SCAVC for £100 p/m it says I will pay £72.08 - is £72.08 the amount that will be taken from my gross pay or net pay?

Plus does the employer make up the differnece?

Assuming the employer isn't contributing any of their NI savings the only way you can get £100 into a pension using salary sacrifice is to agree to give up £100 of your salary.

But if you are a basic rate taxpayer (on at least £100 of your income) you would avoid paying tax and NI on that £100.

The tax saving is £20 and NI £8 so the real cost in lost take home pay is £72.

lastbigspender

Dazed_and_C0nfused said:

lastbigspender said:

So if I was to setup a SCAVC for £100 p/m it says I will pay £72.08 - is £72.08 the amount that will be taken from my gross pay or net pay?

Plus does the employer make up the differnece?

Assuming the employer isn't contributing any of their NI savings the only way you can get £100 into a pension using salary sacrifice is to agree to give up £100 of your salary.

But if you are a basic rate taxpayer (on at least £100 of your income) you would avoid paying tax and NI on that £100.

The tax saving is £20 and NI £8 so the real cost in lost take home pay is £72.

So I would be £72 less in my net income?

Dazed_and_C0nfused

lastbigspender said:

Dazed_and_C0nfused said:

lastbigspender said:

So if I was to setup a SCAVC for £100 p/m it says I will pay £72.08 - is £72.08 the amount that will be taken from my gross pay or net pay?

Plus does the employer make up the differnece?

Assuming the employer isn't contributing any of their NI savings the only way you can get £100 into a pension using salary sacrifice is to agree to give up £100 of your salary.

But if you are a basic rate taxpayer (on at least £100 of your income) you would avoid paying tax and NI on that £100.

The tax saving is £20 and NI £8 so the real cost in lost take home pay is £72.

So I would be £72 less in my net income?

Yes, you sacrifice £100 of salary and your employer adds that to your pension (as an employer contribution so no tax relief gets added).

But your payslip shows you are earning £100 less so there is no tax or NI payable on that £100.  If there had been tax and NI payable you would have paid 20% tax (£20) and 8% NI (£8) so only receiving £72 in net take home pay.

All this is based on you being a basic rate payer always earning at least £100/month more than the standard tax and NI thresholds (~£1,048/month).

joseph80

Dazed_and_C0nfused said:

lastbigspender said:

Dazed_and_C0nfused said:

lastbigspender said:

So if I was to setup a SCAVC for £100 p/m it says I will pay £72.08 - is £72.08 the amount that will be taken from my gross pay or net pay?

Plus does the employer make up the differnece?

Assuming the employer isn't contributing any of their NI savings the only way you can get £100 into a pension using salary sacrifice is to agree to give up £100 of your salary.

But if you are a basic rate taxpayer (on at least £100 of your income) you would avoid paying tax and NI on that £100.

The tax saving is £20 and NI £8 so the real cost in lost take home pay is £72.

So I would be £72 less in my net income?

Yes, you sacrifice £100 of salary and your employer adds that to your pension (as an employer contribution so no tax relief gets added).

But your payslip shows you are earning £100 less so there is no tax or NI payable on that £100.  If there had been tax and NI payable you would have paid 20% tax (£20) and 8% NI (£8) so only receiving £72 in net take home pay.

All this is based on you being a basic rate payer always earning at least £100/month more than the standard tax and NI thresholds (~£1,048/month).

lastbigspender - is this an LGPS pension?