Company pension options

BloomNew

You pay into a company pension and the contributions are taken after tax and insurance from your monthly salary. The company then offers employees to opt into the new 'salary sacrifice' version where contributions are taken pre tax and insurance.

Employer pays 3% and yourself 5% (looking to increase the employee %)

Either way you pay the NI and tax at some point. Is anybody able to advise the better option?

MallyGirl

With Sal sac you benefit from not paying NI on the amount you sacrifice 

QrizB

BloomNew said:

Either way you pay the NI and tax at some point. Is anybody able to advise the better option?

That bit's not true.

Income from pensions is not (currently) subject to NI.

Salary sacrifice of pension contributions provides a significant benefit to most people.

DE_612183

Not really - of course if you pay into the pension pre-tax & NI, and then take the pension before SPA you could avoid paying tax if your income is under the 12750 limit or whatever it is at that time - you'll also not pay any NI anyway...

Dazed_and_C0nfused

BloomNew said:

You pay into a company pension and the contributions are taken after tax and insurance from your monthly salary. The company then offers employees to opt into the new 'salary sacrifice' version where contributions are taken pre tax and insurance.

Employer pays 3% and yourself 5% (looking to increase the employee %)

Either way you pay the NI and tax at some point. Is anybody able to advise the better option?

Salary sacrifice means you won't be paying anything into the pension.

You will be agreeing to take a reduced salary in return for additional employer contributions.

There is no tax relief due on employer contributions so you will no longer see the bit the pension company adds within your pension.

But you will avoid paying both tax and NI on the salary you no longer have.

Unless you are on a low income, for example part time hours, salary sacrifice is usually the better option financially as you avoid 8% NI as well as getting the tax saving.

Some employer also add some or all of their own NI savings.  But you can't bank on that aspect.

BloomNew

Thank you everyone!  Very helpful and wasn't aware you wouldn't pay NI.

Albermarle

BloomNew said:

Thank you everyone!  Very helpful and wasn't aware you wouldn't pay NI.

Salary sacrifice is basically a loophole and is costing the Treasury Billions of Pounds in lost NI ( as the employer also avoids paying some as well).
No doubt will come under scrutiny in the forthcoming budget ( again) but there are some technical issues that would make it complicated to abolish it.

dunstonh

BloomNew said:

Thank you everyone!  Very helpful and wasn't aware you wouldn't pay NI.

Not for the time being anyway.    It may be on borrowed time. So, take advantage of it whilst you can.

Marcon

Albermarle said:

BloomNew said:

Thank you everyone!  Very helpful and wasn't aware you wouldn't pay NI.

Salary sacrifice is basically a loophole and is costing the Treasury Billions of Pounds in lost NI ( as the employer also avoids paying some as well).
No doubt will come under scrutiny in the forthcoming budget ( again) but there are some technical issues that would make it complicated to abolish it.

Far from being a loophole, salary sacrifice is a well-established political policy decision with the relevant legislation backing it up. The objective was, and is, to drive 'desired' behaviours eg contributing to a pension scheme, or travelling by bike rather than car.

What is far more likely to come under scrutiny is whether employers are sticking to the rules relating to salary sacrifice. A worrying number of people are posting here saying that they can change the amount they salary sacrifice 'whenever they like' (or words to that effect), when the requirements are very clear indeed: salary sacrifice requires a contractual change to salary (or bonus arrangements), amongst other things. Anyone who fondly believes that HMRC won't spot that they aren't sticking to the rules needs to think again, as one of my clients recently found to their cost.

MallyGirl

Gosh! I was one of those who could change their pension contribution whenever they liked. I had no idea that was against the HMRC rules - I worked for a large global tech company. OH has the same option and he works for a finance institution 

ali_bear

With my company you had to formally request a change in SS arrangements in writing, I think this is probably enough. HMRC could send out warnings but they would struggle to enforce any kind of retrospective measure. And I'm glad to say it's too late in my case