Pension consultation

Brie

General question re the following:

This is due to the national minimum wage increasing and breaches that may happen and for anyone earning under £16.29 per hour.

If the OP is earning £13.35 an hour would salary sacrifice cause a breach of them receiving minimum wage?

af1963

https://forums.moneysavingexpert.com/discussion/comment/81953139#Comment_81953139

The quoted figures look … odd.

In the "yearly" columns , it shows you taking home more under the Net arrangement. while in the "monthly" and "daily" columns it shows you taking home less.

vacheron

Aah… is the implication that they are planning to change the way the scheme operates, and as a sweetener they are offering an additional ad-hoc salary increase of 2% in order to compensate you for it… which they consider would result in an increase in your overall income (net salary + pension) compared to your existing scheme?

If this is the case, then it makes more sense, however my feeling is they will just rob Peter to pay Paul, or in this particular case, rob Peter to pay Peter !, and if we had a parallel universe machine, I would bet anything that come pay rise time, the additional costs, blah, blah, blah, will mean that there will be no award, or a 2% lower than usual award offered once all this has calmed down and they think everyone has forgotten about it!

You may say I'm cynical, but I've seen this happen too many times to discount it.

molerat

It looks like it is actually a relief at source scheme and not net pay as only 4% is being deducted and will be made up to 5% with a tax credit by the provider, tax is also being applied to the full pay amount. The new scheme makes you 40p per day worse of. You will only be better off if you get the pay rise but you would be even more better off with the old scheme and a 2% pay rise !

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81953289#Comment_81953289

That would be my understanding.

The actual payments into the pension will remain the same . However by moving away from a salary sacrifice scheme, the OP will be paying some more NI ( Salary Sacrifice is in fact a NI avoidance scheme), and the company is offering a 2% salary increase as sweetener, so they can say nobody will lose out with the change.

If this 2% is in addition to a normal salary increase, then OP should be happy enough. ( IF being the keyword)

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81953204#Comment_81953204

So ignoring the 2% pay rise red herring you appear to be better off remaining in a salary sacrifice situation.

In my experience, employers tend to try and dictate how they run these schemes, and they will avoid if at all possible running different schemes for different employees. However to get over the problem of what is probably written in the employment contracts, they offer a sweetener to get as many people as possible to agree to the change. The few that do not, usually find they are marked down in their HR files as members of the 'awkward squad' and their long term future at the employer will be less secure, appraisals more difficult, and pay rises less forthcoming.

In the OPs situation the negative financial effect of the change is relatively small ( if anything), whilst the negative effect of not cooperating could be significant.

Marcon

This is due to the national minimum wage increasing and breaches that may happen and for anyone earning under £16.29 per hour.

Minimum wage has just increased to £12.71. Salary sacrifice 5% and the OP's rate of £13.35 an hour becomes 95% of that, or £12.68.

The actual payments into the pension will remain the same . However by moving away from a salary sacrifice scheme, the OP will be paying some more NI ( Salary Sacrifice is in fact a NI avoidance scheme), and the company is offering a 2% salary increase as sweetener, so they can say nobody will lose out with the change.

Someone will lose out: the employer.

If salary sacrifice continues, OP would be 3p an hour below minimum wage - so hardly rocket science for the employer to increase the hourly rate by that amount and then both OP and their employer would continue to benefit from the NI saving, meaning both parties are better off.

Totallyodd

Thank you all. The 2% increase is not an extra increase. It is more a case of "if" you get an annual pay rise of 2%. In fact last year my pay increase was less than that, although the email that came out told us it was 2% across the board, but that's a different story. Thank you all again for your advice. It has been really helpful and is causing me a lot lest angst.

vacheron

https://forums.moneysavingexpert.com/discussion/comment/81953828#Comment_81953828

Wow, That's a new one on me, even from company management!

Maybe every company should now implement a guaranteed 3% staff pay cut each year on the basis that "if" they later decided to give staff a 4% increase later on, they would then be 1% better off an management thinking, not 3% worse off as in "the rest of the planet" thinking! 🤦‍♂️

Exodi

https://forums.moneysavingexpert.com/discussion/comment/81953828#Comment_81953828

So it's as I thought, incredibly deceptive and misleading to a apply an example of a pay rise to only one of the scenarios.

Marcon

Someone will lose out: the employer.

If salary sacrifice continues, OP would be 3p an hour below minimum wage - so hardly rocket science for the employer to increase the hourly rate by that amount and then both OP and their employer would continue to benefit from the NI saving, meaning both parties are better off.

This was my first thought also. I'm going to guess the employer doesn't share the employer NI saving with the employee either, so they're likely saving 15% of the contribution in tax at the moment. It probably doesn't make sense for them either.

The problem is (and I can empathise as my company has been on the same journey), it's been incredibly hard to run a business in recent years, where NMW has significantly increased in recent years, over and above inflation (and don't even get me started on the dramatic lowering of the NI thresholds last year). To offset some of this, some business reduced headcount (we did) and those that paid above minimum wage reduced the gap to NMW (we also did), but you can only do this so many times.

Ordinarily this is all fine and dandy for most businesses, except, for example, one where they provide a contractual percentage contribution to a salary sacrifice pension, even to low paid staff that were already near the NMW.

I'd be interested in the Maths of it - whether giving everyone the 4.1% increase this year (in line with NMW increase) combined with the saving in employer NI is better or worse than giving everyone 2%, moving everyone off sal sac, and paying employer NI on everything.