Switching from Employer Contribution Pension scheme to Salary Sacrifice

PappaF

I have just received a letter informing me that the company is switching from employer contribution to a salary sacrifice pension scheme.  We were previously contracted to contribute 5% and the company 4%.  There has been no mention of the employer contribution being switched over to the new scheme.  Are they obligated to make the contribution, increase pay to accommodate the change or able to remove this element from the scheme?

Marcon

PappaF said:

I have just received a letter informing me that the company is switching from employer contribution to a salary sacrifice pension scheme.  We were previously contracted to contribute 5% and the company 4%.  There has been no mention of the employer contribution being switched over to the new scheme.  Are they obligated to make the contribution, increase pay to accommodate the change or able to remove this element from the scheme?

It's not a new scheme - simply a way of enabling employees to pay contributions via a method which saves NI for both employer and employee. You will need to agree to a reduction in your contractual salary, and in return the employer will pay the amount sacrificed ('exchanged' would be a better word) into your pension scheme.

Lots of threads about this on this forum, so have a browse if you are still unclear, or see https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/salary-sacrifice-and-your-pension

vacheron

Salary sacrifice does not releive employers of their obligations to make employer contributions. but the new scheme can now take YOUR contributions via Salary Sacrifice.

Some pension schemes do not support Salary Sacrfice (hence why your company scheme had to change in order to support it) but for schemes that do, the choice to use Salary Sacrifce or not is usually still optional.

As it saves both you and your employer money, you will usually be asked if you would like the resulting savings to go towards paying for your 5% contribution (so it costs you less = more take home pay) or be added on top of your existing contribution (so more money goes in your pension for the same take home salary you had with the old scheme).

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

In reality, there is only one real reason why you shouldn't use it but even this can be easily mitigated if your company confirms that if they are asked, they will provide your "pre-sacrifice" salary figure to any companies (mortgage, finance etc.) who request it.

Marcon

vacheron said:

Salary sacrifice does not releive employers of their obligations to make employer contributions. but the new scheme can now take YOUR contributions via Salary Sacrifice.

Some pension schemes do not support Salary Sacrfice (hence why the scheme had to change to support it) but for schemes that do, the choice to use Salary Sacrifce or not is usually still optional.

It's not clear there has been a change of scheme - just a change of method.

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

vacheron said:

In reality, there is only one real reason why you shouldn't use it but even this can be easily mitigated if your company confirms that if they are asked, they will provide your "pre-sacrifice" salary figure to any companies (mortgage, finance etc.) who request it.

...and employees on minimum wage can't take advantage of salary sacrifice, because it would reduce their pay below minimum wage.
.

Cobbler_tone

Marcon said:

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

.

I always play a game of when I raise a question in my large organisation (via the correct channels) I try to guess the answer in advance. It is a bit like approaching a politician! 

I asked for some of the employer savings and got the exact answer I predicted.
1. The employer contributions are already generous.
2. Not all employees can afford to contribute above the standard rate, so it would be unfair for a sub set of employees to gain a financial advantage.

You know they can't really justify (or even acknowledge) that it is saving them money (verses the fully costed head they will have budgeted for) but I guess you are subsidising the total contributions they make for the work force indirectly. I'm sure it just gets swallowed up and probably comes down to extra admin/system work they are not inclined to do, or implement the resources to do it. I'd imagine that is normally the real reason.

Marcon

Cobbler_tone said:

Marcon said:

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

.

I always play a game of when I raise a question in my large organisation (via the correct channels) I try to guess the answer in advance. It is a bit like approaching a politician! 

I asked for some of the employer savings and got the exact answer I predicted.
1. The employer contributions are already generous.
2. Not all employees can afford to contribute above the standard rate, so it would be unfair for a sub set of employees to gain a financial advantage.

You know they can't really justify (or even acknowledge) that it is saving them money (verses the fully costed head they will have budgeted for) but I guess you are subsidising the total contributions they make for the work force indirectly. I'm sure it just gets swallowed up and probably comes down to extra admin/system work they are not inclined to do, or implement the resources to do it. I'd imagine that is normally the real reason.

Salary sacrifice benefits both employer and employee, so why do you feel the employer has to 'justify' anything?  If an employer introduces salary sacrifice, they will have adjusted their budget accordingly. They certainly won't be working on the premise you seem to be suggesting: that employees will go into a sulk en masse because they aren't getting any of the mean old employer's NI saving, so just to spite their employer, employees will insist on making personal contributions instead...

Delightful as extra cash in an employee's pay packet or pension always is, if the employer fails and they don't have a job, that could be a bit of a problem when jobs are currently in short supply. So maybe having an employer who is commercially aware and remains viable, thus increasing job security...

Employers need to remain solvent. I think you'll find that might be the 'real reason'.

Cobbler_tone

Marcon said:

Cobbler_tone said:

Marcon said:

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

.

I always play a game of when I raise a question in my large organisation (via the correct channels) I try to guess the answer in advance. It is a bit like approaching a politician! 

I asked for some of the employer savings and got the exact answer I predicted.
1. The employer contributions are already generous.
2. Not all employees can afford to contribute above the standard rate, so it would be unfair for a sub set of employees to gain a financial advantage.

You know they can't really justify (or even acknowledge) that it is saving them money (verses the fully costed head they will have budgeted for) but I guess you are subsidising the total contributions they make for the work force indirectly. I'm sure it just gets swallowed up and probably comes down to extra admin/system work they are not inclined to do, or implement the resources to do it. I'd imagine that is normally the real reason.

Salary sacrifice benefits both employer and employee, so why do you feel the employer has to 'justify' anything?  If an employer introduces salary sacrifice, they will have adjusted their budget accordingly. They certainly won't be working on the premise you seem to be suggesting: that employees will go into a sulk en masse because they aren't getting any of the mean old employer's NI saving, so just to spite their employer, employees will insist on making personal contributions instead...

Delightful as extra cash in an employee's pay packet or pension always is, if the employer fails and they don't have a job, that could be a bit of a problem when jobs are currently in short supply. So maybe having an employer who is commercially aware and remains viable, thus increasing job security...

Employers need to remain solvent. I think you'll find that might be the 'real reason'.

Certainly grateful of a healthy contribution and a secure, well paid job for 32 years.
It wouldn't even be on the radar of the vast majority of employees. I am grateful for my own tax and NI savings which are significant (cut my personal tax burden in half)...it was more a case of 'if you don't ask you don't get'. The question wouldn't have even been on my mind if it wasn't for reading some of the posts and didn't even realise that some employers pass the savings on. 

As an experienced employee (non union) rep, I've also consulted on several employee benefits, including saving job roles and considerable funded training for employees leaving the business. Once you are consulting on anything, whether it is pension or redundancy programmes it is normally 'bad news', so you do what you can for fellow employees regardless of their level in the organisation.
.
So 'justify' was harsher than it was implied...they are a good employer who want to do the right thing.

vacheron

Marcon said:

Cobbler_tone said:

Marcon said:

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

.

I always play a game of when I raise a question in my large organisation (via the correct channels) I try to guess the answer in advance. It is a bit like approaching a politician! 

I asked for some of the employer savings and got the exact answer I predicted.
1. The employer contributions are already generous.
2. Not all employees can afford to contribute above the standard rate, so it would be unfair for a sub set of employees to gain a financial advantage.

You know they can't really justify (or even acknowledge) that it is saving them money (verses the fully costed head they will have budgeted for) but I guess you are subsidising the total contributions they make for the work force indirectly. I'm sure it just gets swallowed up and probably comes down to extra admin/system work they are not inclined to do, or implement the resources to do it. I'd imagine that is normally the real reason.

Salary sacrifice benefits both employer and employee, so why do you feel the employer has to 'justify' anything?  If an employer introduces salary sacrifice, they will have adjusted their budget accordingly. They certainly won't be working on the premise you seem to be suggesting: that employees will go into a sulk en masse because they aren't getting any of the mean old employer's NI saving, so just to spite their employer, employees will insist on making personal contributions instead...

Delightful as extra cash in an employee's pay packet or pension always is, if the employer fails and they don't have a job, that could be a bit of a problem when jobs are currently in short supply. So maybe having an employer who is commercially aware and remains viable, thus increasing job security...

Employers need to remain solvent. I think you'll find that might be the 'real reason'.

That might be the case for some but it certainly wasn’t for our company.

In our case it was clearly apparent that the company pension advisor had pitched the benefits of Salary Sacrifice to our senior management, and they (particularly our managing director who was getting seriously into his pensions at the time) had realised the potential this had for their own contributions and also kindly implemented the scheme for all employees.

This is also no doubt the reason why it was decided that 100% of all employer NIC savings (including AVC’s) are gifted to the employee. 😁

I remain extremely thankful to them because had they stuck with our previous “run of the mill” scheme, there’s no way I’d have been motivated to put over 50% of my gross salary into it for the last 15+ years as has now been the case.

vacheron

Cobbler_tone said:

Marcon said:

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

.

I always play a game of when I raise a question in my large organisation (via the correct channels) I try to guess the answer in advance. It is a bit like approaching a politician! 

I asked for some of the employer savings and got the exact answer I predicted.
1. The employer contributions are already generous.
2. Not all employees can afford to contribute above the standard rate, so it would be unfair for a sub set of employees to gain a financial advantage.

You know they can't really justify (or even acknowledge) that it is saving them money (verses the fully costed head they will have budgeted for) but I guess you are subsidising the total contributions they make for the work force indirectly. I'm sure it just gets swallowed up and probably comes down to extra admin/system work they are not inclined to do, or implement the resources to do it. I'd imagine that is normally the real reason.

Re. your employers justification #2: This seems a very weak argument as being able to afford additional contributions is already fundamentally “unfair” because the employee is likely to benefit far greater in the long run from both an investment return and a marginal tax rate in  retirement perspective.

it’s also amazing how many people have left our company and tried to have salary sacrifice implemented in their subsequent companies only for the financial department to either be utterly oblivious of it, or under the impression that this is some sort of shady tax dodge, or even illegal, even when my ex colleagues have shown them the pages on the.gov website that explains how to implement it! 🤦‍♂️🤦‍♂️🤦‍♂️

GunJack

I'm quite surprised that, with the increased employer's NI contributions, every possible employer hasn't switched to sal sac tbh.....

Cobbler_tone

vacheron said:

Cobbler_tone said:

Marcon said:

vacheron said:

The first question I would be asking though is how much of your employers 15% NI saving from using Salary Sacrifice are they willing to pass on to the employees, as this can vary all the way from 0% to 100% 

The question is worth asking, but OP shouldn't get their hopes up that the employer will pass on any of the employer saving - employees will benefit from their own NI saving regardless, so it's still worth doing

.

I always play a game of when I raise a question in my large organisation (via the correct channels) I try to guess the answer in advance. It is a bit like approaching a politician! 

I asked for some of the employer savings and got the exact answer I predicted.
1. The employer contributions are already generous.
2. Not all employees can afford to contribute above the standard rate, so it would be unfair for a sub set of employees to gain a financial advantage.

You know they can't really justify (or even acknowledge) that it is saving them money (verses the fully costed head they will have budgeted for) but I guess you are subsidising the total contributions they make for the work force indirectly. I'm sure it just gets swallowed up and probably comes down to extra admin/system work they are not inclined to do, or implement the resources to do it. I'd imagine that is normally the real reason.

Re. your employers justification #2: This seems a very weak argument as being able to afford additional contributions is already fundamentally “unfair” because the employee is likely to benefit far greater in the long run from both an investment return and a marginal tax rate in  retirement perspective.

I do get it. We live by internal fairness. It was the reason why we wouldn't introduce a car scheme, as not all employees would be able to afford it. Only this year have we raised wages to allow everyone to access the pension, share scheme and private healthcare, whilst remaining above NMW. Our lowest paid employees are now on over £30k PA. This meant a significant pay rise for some.
The company contribution is 12%, so for the majority of employees contributing at 6% comes at a cost.