LGPS Salary Sacrifice AVC NI savings

seans_elysees

I’ve been paying standard AVCs for a while now, but now considering options around salary sacrifice AVCs. 

Trying to get my head around the NIC savings on offer. 

Current salary is approx. £57k. Would I be right to assume that any salary sacrifice AVC’s would only attract 2% NIC saving (plus income tax saving obviously). And if I contributed more than £7k , taking me below the £50,270 upper earnings limit then I’d start to get 8% savings? 

It’s almost like the reverse of the tax savings on income tax for pensions where you save at the highest % rate first? 

Is that right? 

Dazed_and_C0nfused

seans_elysees said:

I’ve been paying standard AVCs for a while now, but now considering options around salary sacrifice AVCs. 

Trying to get my head around the NIC savings on offer. 

Current salary is approx. £57k. Would I be right to assume that any salary sacrifice AVC’s would only attract 2% NIC saving (plus income tax saving obviously). And if I contributed more than £7k , taking me below the £50,270 upper earnings limit then I’d start to get 8% savings? 

It’s almost like the reverse of the tax savings on income tax for pensions where you save at the highest % rate first? 

Is that right? 

Yes.  No idea if this is possible with LGPS but some people make bumpy salary sacrifice contributions to manipulate the mix of 20/40% tax and 8/2% NI avoidance.

AlanP_2

Does your employer offer SS for LGPS AVC contributions as not all do.

seans_elysees

AlanP_2 said:

Does your employer offer SS for LGPS AVC contributions as not all do.

Our LGPS fund links into Prudential for AVC’s and does offer SS as part of that. 

SarahB16

seans_elysees said:

I’ve been paying standard AVCs for a while now, but now considering options around salary sacrifice AVCs. 

Trying to get my head around the NIC savings on offer. 

Current salary is approx. £57k. Would I be right to assume that any salary sacrifice AVC’s would only attract 2% NIC saving (plus income tax saving obviously). And if I contributed more than £7k , taking me below the £50,270 upper earnings limit then I’d start to get 8% savings? 

It’s almost like the reverse of the tax savings on income tax for pensions where you save at the highest % rate first? 

Is that right? 

Have you taken account of your LGPS pension contributions?  I’m not sure of your pension rate for a gross salary of £57k but let’s say it is 8.5% then this would see a deduction of £4,845 from your gross salary, i.e. £57kx 8.5% = £4,845.

Your AVC contributions are then deducted from £52,155, i.e. the £57k less £4,845.

Therefore your AVC contributions are likely to first receive the benefit of the higher rate of tax and the lower rate of NI contributions but then as you fall into the lower rate of income tax you will benefit from the higher rate of National Insurance contributions.  

seans_elysees

SarahB16 said:

seans_elysees said:

I’ve been paying standard AVCs for a while now, but now considering options around salary sacrifice AVCs. 

Trying to get my head around the NIC savings on offer. 

Current salary is approx. £57k. Would I be right to assume that any salary sacrifice AVC’s would only attract 2% NIC saving (plus income tax saving obviously). And if I contributed more than £7k , taking me below the £50,270 upper earnings limit then I’d start to get 8% savings? 

It’s almost like the reverse of the tax savings on income tax for pensions where you save at the highest % rate first? 

Is that right? 

Have you taken account of your LGPS pension contributions?  I’m not sure of your pension rate for a gross salary of £57k but let’s say it is 8.5% then this would see a deduction of £4,845 from your gross salary, i.e. £57kx 8.5% = £4,845.

Your AVC contributions are then deducted from £52,155, i.e. the £57k less £4,845.

Therefore your AVC contributions are likely to first receive the benefit of the higher rate of tax and the lower rate of NI contributions but then as you fall into the lower rate of income tax you will benefit from the higher rate of National Insurance contributions.  

Yeah, I get what you’re saying. I maybe didn’t word my final paragraph well but I think all my original assumptions were right. 

My LGPS pension is 7.1% on £57,283 = £4,067. Saving 42% (Scotland) tax on that amount. Taxable income = £53,216. 

Regardless of that, NI is still paid on my FULL salary amount. 

If I chose to do £10k salary sacrifice AVC’s then my (income) taxable income drops to £43,216, and my NI taxable income is £47,283 - meaning that I’d make an NI saving of (57,283 - 50,270)*0.02 + (50,270 - 47,283)*0.08.