Salary sacrifice

Paulm4949

Hi All.
I’ve been asked if I want to opt out of salary sacrifice, as my company has just taken it up and is auto enrolling everyone with the option of opting out, I’m on more than 50k but don’t really get the explanation they sent, my suspicious nature says it will benefit the government and my employer whilst only benefiting me by £55, am I being silly or could someone explain the merits for me please

Mark_d

I take it this refers to pension contributions?  Yes employer does benefit but so do you.  It's absolutely a good thing unless you've got a good reason you shouldn't do it

El_Torro

I assume you already had a pension scheme with your employer and now you are being moved to a salary sacrifice scheme. Assuming the contributions are the same as they were before (employer and employee contributions combined) then you will be better off using salary sacrifice than the old scheme. 

The reason for being better off is that with salary sacrifice schemes you don't just save on the Income Tax, you also save on the National Insurance. Your employer will also be better off because they will be paying less employer National Insurance contributions. Some employers will even pass on some or all of the savings on to the employee. Many don't though. 

The government won't be better off because you and your employer are paying less tax than they were before.

One point about salary sacrifice is that your employer still has to pay you at least minimum wage, after pension contributions have been taken off. So anyone on minimum wage is not actually able to use salary sacrifice. This shouldn't be an issue for you though since you say you earn more than £50k a year.


The above all assumes you are moving from a DC pension to a DC pension. If your old pension was DB and you are now moving to a DC salary sacrifice scheme then you are probably worse off than you were before.

ColdIron

There are few good reasons to opt out of SS

If you are on more than £50K then you likely pay some higher rate income tax. SS means you won't have to claim that tax back from HMRC and it goes into your pension not your bank account

And of course you (and your employer) pay less NI

Dazed_and_C0nfused

Paulm4949 said:

Hi All.
I’ve been asked if I want to opt out of salary sacrifice, as my company has just taken it up and is auto enrolling everyone with the option of opting out, I’m on more than 50k but don’t really get the explanation they sent, my suspicious nature says it will benefit the government and my employer whilst only benefiting me by £55, am I being silly or could someone explain the merits for me please

Do you really mean that?

Or have you been asked if you want to opt in to salary sacrifice?

Paulm4949

Dazed_and_C0nfused said:

Paulm4949 said:

Hi All.
I’ve been asked if I want to opt out of salary sacrifice, as my company has just taken it up and is auto enrolling everyone with the option of opting out, I’m on more than 50k but don’t really get the explanation they sent, my suspicious nature says it will benefit the government and my employer whilst only benefiting me by £55, am I being silly or could someone explain the merits for me please

Do you really mean that?

Or have you been asked if you want to opt in to salary sacrifice?

Sorry I don’t understand the question, I am in a company pension and they are auto enrolling everyone, I’ve had an email stating I could opt out if I wanted 

ColdIron

Are you being asked if you want to opt out of the pension itself?

Paulm4949

El_Torro said:

I assume you already had a pension scheme with your employer and now you are being moved to a salary sacrifice scheme. Assuming the contributions are the same as they were before (employer and employee contributions combined) then you will be better off using salary sacrifice than the old scheme. 

The reason for being better off is that with salary sacrifice schemes you don't just save on the Income Tax, you also save on the National Insurance. Your employer will also be better off because they will be paying less employer National Insurance contributions. Some employers will even pass on some or all of the savings on to the employee. Many don't though. 

The government won't be better off because you and your employer are paying less tax than they were before.

One point about salary sacrifice is that your employer still has to pay you at least minimum wage, after pension contributions have been taken off. So anyone on minimum wage is not actually able to use salary sacrifice. This shouldn't be an issue for you though since you say you earn more than £50k a year.


The above all assumes you are moving from a DC pension to a DC pension. If your old pension was DB and you are now moving to a DC salary sacrifice scheme then you are probably worse off than you were before.

El_Torro said:

I assume you already had a pension scheme with your employer and now you are being moved to a salary sacrifice scheme. Assuming the contributions are the same as they were before (employer and employee contributions combined) then you will be better off using salary sacrifice than the old scheme. 

The reason for being better off is that with salary sacrifice schemes you don't just save on the Income Tax, you also save on the National Insurance. Your employer will also be better off because they will be paying less employer National Insurance contributions. Some employers will even pass on some or all of the savings on to the employee. Many don't though. 

The government won't be better off because you and your employer are paying less tax than they were before.

One point about salary sacrifice is that your employer still has to pay you at least minimum wage, after pension contributions have been taken off. So anyone on minimum wage is not actually able to use salary sacrifice. This shouldn't be an issue for you though since you say you earn more than £50k a year.


The above all assumes you are moving from a DC pension to a DC pension. If your old pension was DB and you are now moving to a DC salary sacrifice scheme then you are probably worse off than you were before.

El_Torro said:

I assume you already had a pension scheme with your employer and now you are being moved to a salary sacrifice scheme. Assuming the contributions are the same as they were before (employer and employee contributions combined) then you will be better off using salary sacrifice than the old scheme. 

The reason for being better off is that with salary sacrifice schemes you don't just save on the Income Tax, you also save on the National Insurance. Your employer will also be better off because they will be paying less employer National Insurance contributions. Some employers will even pass on some or all of the savings on to the employee. Many don't though. 

The government won't be better off because you and your employer are paying less tax than they were before.

One point about salary sacrifice is that your employer still has to pay you at least minimum wage, after pension contributions have been taken off. So anyone on minimum wage is not actually able to use salary sacrifice. This shouldn't be an issue for you though since you say you earn more than £50k a year.


The above all assumes you are moving from a DC pension to a DC pension. If your old pension was DB and you are now moving to a DC salary sacrifice scheme then you are probably worse off than you were before.

Sorry could you explain what DC and DB stand for?

Paulm4949

ColdIron said:

Are you being asked if you want to opt out of the pension itself?

No just the salary sacrifice 

Marcon

Paulm4949 said:

ColdIron said:

Are you being asked if you want to opt out of the pension itself?

No just the salary sacrifice 

Paulm4949 said:

Hi All.
I’ve been asked if I want to opt out of salary sacrifice, as my company has just taken it up and is auto enrolling everyone with the option of opting out, I’m on more than 50k but don’t really get the explanation they sent, my suspicious nature says it will benefit the government and my employer whilst only benefiting me by £55, am I being silly or could someone explain the merits for me please

Are you able to explain what it is you 'don't really get' about their explanation? That is much more likely to help you understand the concept, as opposed to people here simply telling you it's a good idea (although it is...).

El_Torro

Paulm4949 said:

El_Torro said:

I assume you already had a pension scheme with your employer and now you are being moved to a salary sacrifice scheme. Assuming the contributions are the same as they were before (employer and employee contributions combined) then you will be better off using salary sacrifice than the old scheme. 

The reason for being better off is that with salary sacrifice schemes you don't just save on the Income Tax, you also save on the National Insurance. Your employer will also be better off because they will be paying less employer National Insurance contributions. Some employers will even pass on some or all of the savings on to the employee. Many don't though. 

The government won't be better off because you and your employer are paying less tax than they were before.

One point about salary sacrifice is that your employer still has to pay you at least minimum wage, after pension contributions have been taken off. So anyone on minimum wage is not actually able to use salary sacrifice. This shouldn't be an issue for you though since you say you earn more than £50k a year.


The above all assumes you are moving from a DC pension to a DC pension. If your old pension was DB and you are now moving to a DC salary sacrifice scheme then you are probably worse off than you were before.

Sorry could you explain what DC and DB stand for?

A Defined Contribution (DC) pension is one where you have a pot of money which is typically invested in the stock market. The value of the pension goes up and down depending on what you are invested in. 

A Defined Benefit (DB) pension is also known as a final salary or career average pension. There is no pot of money, instead the pension scheme guarantees to pay you a certain amount every month from when you retire until you die. The amount you get depends on how many years you spend contributing to the scheme. These tend to be much more generous than DC pensions. DB pensions are dying out in the private sector, still common in the public sector.