Salary sacrifice

QrizB

If you're earning ~£55k and are a 40% taxpayer, and you're making the minimum 5% auto-enrollment pension contributions, by salary sacrifice that's £2750 a year.

If you paid it without salsac, you'd still be liable for 2% NI on that sum which is the £55-a-year you've mentioned.

It's not a big saving but it's better to have £55 than not to have it?

squirrelpie

The one possible disadvantage of salary sacrifice is that it reduces your nominal salary, and that can, for example, reduce the size of mortgage you can get.

MX5huggy

Salary Sacrifice also reduces Student loan payments if you are making these. (This is generally a good thing, if you are never going to pay of the total Student loan). 

If you bumped up your pension contributions so you were making contributions out of income your were paying 20% tax on the NI saving would rise to 8% on those contributions. 

af1963

QrizB said:

If you're earning ~£55k and are a 40% taxpayer, and you're making the minimum 5% auto-enrollment pension contributions, by salary sacrifice that's £2750 a year.

If you paid it without salsac, you'd still be liable for 2% NI on that sum which is the £55-a-year you've mentioned.

It's not a big saving but it's better to have £55 than not to have it?

Also, for others reading this thread: the 2% / £55 figure relates to the amounts saved by someone earning above the NI upper earnings limit. For people earning less ( but enough to pay tax and NI) , the extra saving under salary sacrifice is a higher percentage, because they save 8% NI rather than 2%.   It used to be even higher.

Someone on £50k contributing 5% ( £2500 pa) would save 8% of their contribution,  £200.

vacheron

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

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

It does benefit your employer as they also do not need to play pay their employer National Insurance contributions on the salary you sacrifice, however this does not affect you in any way. In fact, in many cases employers might pass some of their National Insurance savings to the employee which will actually gain you more money in your pension, but this depends on the scheme.

When our company first offered salary sacrifice many years ago employees were also given the option of opting out and about 20% did. I still do not understand their logic to this day, however on speaking to them most held similar opinions that his was some kind of employer trick that was not going to not be in their best interests.

The only significant downside of salary sacrifice is that your salary will appear to be lower on paper, however the total money you are receiving from your employer (including pension contributions) will actually be slightly higher, but if your company presents the lower sacrificed salary amount to institutions such as mortgage lenders or credit card companies this may result in problems in obtaining the amount of credit you may otherwise have received. However the employer may confirm that, should they be asked for such information, they would provide your pre salary sacrifice amount to such inquiries which would eliminate this risk.

Albermarle

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

dunstonh

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I believe that the latest figures have it over £23bn a year.   When you consider that around 25 years ago, it barely registered as a cost, it has become a significant cost to the Treasury.

vacheron

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I was actually going to touch on that on my earlier post. Our company was one of the early adopters of salary sacrifice and after we explained it to our friends (or when people left our company to work for other companies who didn't offer it), these people often lobbied their new finance departments to see if it could be introduced at their workplace.

It was amazing how many finance directors were unaware of it and were reluctant to implement it because they were of the impression that it was somehow "dodgy" or some kind of tax evasion (rather than avoidance) scheme.

Even when they were given links directly to the .GOV page that shows employers how to implement salary sacrifice, many still remained suspicious. 

Personally (although I also still tend to refer to it as such), I wouldn't really consider pension salary sacrifice as "tax avoidance" because there is no bending of the rules involved. The rules are exactly as permitted by government legislation and used for the explicit purpose for which they were intended.

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

ali_bear

As well as collecting tax the HMRC and GOV do want to encourage us to save into pensions. 

westv

dunstonh said:

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I believe that the latest figures have it over £23bn a year.   When you consider that around 25 years ago, it barely registered as a cost, it has become a significant cost to the Treasury.

Remember that sal sac doesn't just include pensions. Is there a figure purely for that?