signing up to workplace pension

wilkko73

I haven't got a clue about pensions,I'm starting a part time job 25 hours a week,it's a minimum wage job.The literature online describing the pension says you can pay in directly from my pay or use something called SMART 

Saving through SMART(also known as salary sacrifice) for those who pay taxSMART is a way of paying towards your retirement savings through salary sacrifice – which means you can pay less National Insurance (NI), as well as less tax. l Paying through SMART means that you don’t pay into the Plan directly.l Instead, your pay is reduced (or “sacrificed”) by the amount of the contribution you wish to make. Booker then pays the same amount into the Plan on your behalf

So should I sign up with Smart or could it create problems if it means less NI is paid would that create problems with my state pension in the future?Are there other problems associated with it?

JoeCrystal

You cannot sacrifice below your minimum wage so if your job is really a minimum wage then they should not offer you the option as far as I am aware. Is this something your employer actually offered or something you read with pension provider?

vacheron

The only negative with salary sacrifice pensions is that you are efffectively taking a small pay cut in exchange for your employer putting the same amount into your pension on your behalf. This means that you earn less money on paper (although you get it back as pension contributions).

However if someone did ask your employer for your salary they might state the after sacrifice amount to them which could reduce the amount a lender was prepared to offer for of loans, credit cards, mortgages etc. 

The positives of salary sacrifice is that you pay less tax in the form of National Insurance contributions and sometimes your employer will give you the savings they make on their national contributions as well.

Having used Salsac for over 10 years now I would be hesitant to move to another employer whose scheme didn't offer it.  

GrumpyDil

And my company confirmed that any request for earnings reference would reflect my true salary rather than the salary sacrifice element of it so that might not be an issue 

Cobbler_tone

GrumpyDil said:

And my company confirmed that any request for earnings reference would reflect my true salary rather than the salary sacrifice element of it so that might not be an issue 

I was going to reference that. Your contractual salary is your salary. It is up to you how you spend it!

Someone may ask for how much you contribute to your pension, the same as they may ask if you have any personal loans.

In my experience SS is far cleaner, tax and NI efficient and easy to understand, although it does seem to confuse a fair few still looking for further tax relief on their pensions!

Albermarle

Remember that with any workplace pension, your employer will add some in addition to your own contributions.
So ideally you do not want to miss out on this free money.

Marcon

Cobbler_tone said:

GrumpyDil said:

And my company confirmed that any request for earnings reference would reflect my true salary rather than the salary sacrifice element of it so that might not be an issue 

I was going to reference that. Your contractual salary is your salary. It is up to you how you spend it!

With salary sacrifice, your contractual salary is the post-sacrifice amount. That's why there are issues once someone tries to sacrifice below minimum wage levels.


'Salary sacrifice arrangements require a formal variation to the employment contract, as the employees are giving up their contractual right to receive a portion of their future salary or bonus in return for a pension contribution. This needs to be clearly and validly documented in accordance with HMRC’s requirements for implementing a valid salary sacrifice arrangement.' https://wedlakebell.com/salary-sacrifice-pension-arrangements/#:~:text=Salary%20sacrifice%20arrangements%20require%20a,return%20for%20a%20pension%20contribution.

af1963

JoeCrystal has already made the key observation. You can't use salary sacrifice to reduce your hourly rate below minimum wage. Even though you'd be allowed to make the same payment into your pension by other methods which are less generous because they don't save the NI, salary sacrifice wouldn't be allowed.

It's a rule that means low-paid staff can't benefit from the NI savings available to people on higher hourly rates. Similar issues affect other salary sacrifice schemes like bike purchase - and it's even worse for these, because at least with the pension, you have other ways to get the tax relief even if you can't save the NI.  

If you do get to the point that you're earning a bit above min wage, salary sacrifice does become both allowed and (usually) worthwhile.

Marcon

af1963 said:

JoeCrystal has already made the key observation. You can't use salary sacrifice to reduce your hourly rate below minimum wage. Even though you'd be allowed to make the same payment into your pension by other methods which are less generous because they don't save the NI, salary sacrifice wouldn't be allowed.

It's a rule that means low-paid staff can't benefit from the NI savings available to people on higher hourly rates. Similar issues affect other salary sacrifice schemes like bike purchase - and it's even worse for these, because at least with the pension, you have other ways to get the tax relief even if you can't save the NI.  

If you do get to the point that you're earning a bit above min wage, salary sacrifice does become both allowed and (usually) worthwhile.

If you're a part time worker, especially one on minimum wage, you might not be earning enough to pay tax or NI in the first place - but you can still make personal contributions to a pension scheme and get tax relief at basic rate. From the tax year 2024/25, this has been extended to those in 'net pay' schemes as well as those in relief at source schemes.

wilkko73

Thank you all ,that makes things a bit clearer for me

Farside71

Nott always stated on here, but some employers, mine included, determine each pay day if your contribution is salary sacrifice or not.  I am signed up to a smart scheme and some months it comes off as salary sacrifice and other months it's made as a normal contribution.  It probably depends on the capabilities of your employer.