What constitutes salary sacrifice on a pension

Moonwolf

As I am already retired this doesn’t impact me now but I am curious.

If I understand it correctly, pension salary sacrifice is where someone gives up salary for a larger employer contribution to the pension, normally a pension contribution by an employer is not subject to tax or national insurance.

How does the system tell the difference between a generous employer contribution and salary sacrifice. It isn’t just when the employer pays more than the employee is it?

In the past I had one employer who matched my contributions up to 10%. So there was a contribution I made and one the employer made. No salary sacrifice.

Alternatively I could have worked for an employer who matched to 4% but allowed me to sacrifice additional salary up to 6%. Effectively the employer is still paying 10% but this time 6% is sacrificed.

One of my private DB schemes was under funded for a time and the employer paid a few £m into the pot, not salary sacrifice.

My NHS pension payments were net pay and the % varied over time, usually around 10%, but according to the paperwork the NHS “paid” an additional 23% of my salary into the pension, much more than I was paying but not salary sacrifice. (No actual fund so this is a bit artificial) 

Could an employer say to everyone, because of the new rules we are changing salary structure. From now on we will pay 10% of everyone’s salary into a pension and you can add what you want. In the short term, salaries will be cut slightly to match this. This is now an employer contribution, not salary sacrifice?

Dead_keen

The employer will know. Have a look at this: https://forums.moneysavingexpert.com/discussion/comment/81764120/#Comment_81764120

Marcon

Moonwolf said:

Could an employer say to everyone, because of the new rules we are changing salary structure. From now on we will pay 10% of everyone’s salary into a pension and you can add what you want. In the short term, salaries will be cut slightly to match this. This is now an employer contribution, not salary sacrifice?

Not if employees are on minimum wage...

kimwp

Marcon said:

Moonwolf said:

Could an employer say to everyone, because of the new rules we are changing salary structure. From now on we will pay 10% of everyone’s salary into a pension and you can add what you want. In the short term, salaries will be cut slightly to match this. This is now an employer contribution, not salary sacrifice?

Not if employees are on minimum wage...

But they wouldn't be able to do salary sacrifice on a min wage anyway?

kimwp

Moonwolf said:

As I am already retired this doesn’t impact me now but I am curious.

If I understand it correctly, pension salary sacrifice is where someone gives up salary for a larger employer contribution to the pension, normally a pension contribution by an employer is not subject to tax or national insurance.

How does the system tell the difference between a generous employer contribution and salary sacrifice. It isn’t just when the employer pays more than the employee is it?

In the past I had one employer who matched my contributions up to 10%. So there was a contribution I made and one the employer made. No salary sacrifice.

Alternatively I could have worked for an employer who matched to 4% but allowed me to sacrifice additional salary up to 6%. Effectively the employer is still paying 10% but this time 6% is sacrificed.

One of my private DB schemes was under funded for a time and the employer paid a few £m into the pot, not salary sacrifice.

My NHS pension payments were net pay and the % varied over time, usually around 10%, but according to the paperwork the NHS “paid” an additional 23% of my salary into the pension, much more than I was paying but not salary sacrifice. (No actual fund so this is a bit artificial) 

Could an employer say to everyone, because of the new rules we are changing salary structure. From now on we will pay 10% of everyone’s salary into a pension and you can add what you want. In the short term, salaries will be cut slightly to match this. This is now an employer contribution, not salary sacrifice?

I think it would depend on the company set-up. For example, my company would have to negotiate this with the union, there would be consultation with union members etc. 

Whether the company would want to is another matter - (I imagine) employers will have different (tax/NI) advantages under different schemes.

gesdt50

The general heading Salary sacrifice is extremely poor choice and having read a few articles, forum posts I'm still no wiser to it's specifics as the specifics are also vague 

daveyjp

SS is one of those issues that sits in the area of 'if it was easy everyone would do it'.

Regulatory, financial and and HR issues all need to be considered.

Marcon

kimwp said:

Marcon said:

Moonwolf said:

Could an employer say to everyone, because of the new rules we are changing salary structure. From now on we will pay 10% of everyone’s salary into a pension and you can add what you want. In the short term, salaries will be cut slightly to match this. This is now an employer contribution, not salary sacrifice?

Not if employees are on minimum wage...

But they wouldn't be able to do salary sacrifice on a min wage anyway?

Correct. That's why I made the point.

Marcon

daveyjp said:

SS is one of those issues that sits in the area of 'if it was easy everyone would do it'.

Regulatory, financial and and HR issues all need to be considered.

It's (currently) not difficult, which is why so many people are doing it!