Net pension / benefits / salary sacrifice

Totallyodd

Good morning,

Work / Benefits / Pension

I previously posted on the forum about my place of work changing our pension sacrifice from NET to GROSS, where we will be taxed twice for our contributions. This is where I am not sure that I have this thread under the correct heading…..

Due to the change in salary sacrifice this is causing financial problems with staff members who, for instance, lease cars through salary sacrifice. This is their only way of getting to work as there is no public transport that goes past here. These employees are not on minimum wage, but are by no means the highest earners - who the salary sacrifice does not affect. Cars are being handed back to the leasing company because it can no longer be afforded, this could also include people who have white goods etc. on salary sacrifice. The company has agreed to pay the cost of early return of cars etc.

The minimum wage has been increased by the government, but those not on minimum wage have been told that out pay rise will not be above 2% and that by agreeing to a net pension they will be kind enough to give us a 2% uplift. Those who have not agreed will only get what is given - less than 2%. Could people who were on minimum wage now be earning more than those fractionally above it?

The overtime rate has also be reduced.

We have a person coming in from head office next week to discuss pensions / benefits and need to be able to put all this to her with some conviction.

Is any one able to advise on how we should go about this? However, I am aware that anything raised in this meeting will be taken away for "discussion" and nothing will be heard of again.

Many thanks

GrumpyDil

I can't answer the rest of the query but if pension contributions are taken by salary sacrifice then there is no issue of tax impacting them as the pension is taken by reducing your gross pay which results in you paying neither tax or National Insurance, although the national insurance element is planned to be reduced to £2000 of sacrifice next year.

Also there is no way you will be getting double taxed on pension contributions so a little more detail would be helpful.

Totallyodd

Apologies, I need to amend the post, the pension is being taken after tax.

doodling

Hi,

I think it would be really helpful for you to provide an example, with some numbers, of exactly what is changing. The only real difference, at the end of the tax year between salary sacrifice, employee gross or employee net contributions (assuming that pay isn't so low that non-taxable salary is sacrificed) is the NI that gets paid on on employee contributions - is that the issue here?

penners324

Sounds like employees dont understand what salary sacrifice is.

What you've posted doesn't make any sense.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82027501#Comment_82027501

I think there may be more detail in the previous thread

Pension consultation — MoneySavingExpert Forum

I think it is all to do with NMW increasing.

Grumpy_chap

It is very difficult to understand the OP's query.

Perhaps it would be easier to provide a focused response if the OP set out the changes as they understand them and only as they apply to the OP, rather than trying to cover all the bases for all the people in the company that might be impacted in different ways.

Totallyodd

Hi,

It is not that we don't understand what salary sacrifice is.

The increase in the NMW is affecting some employees. As a person with no financial knowledge I want to understand why the company are using this to change our pension from net to gross, along with salary sacrifice for lease cars etc. So, as I understand it, money will be deducted after tax, rather than before. Which in turn is making us worse off.

Sorry, if I am not making sense to those with financial acumen, but this is the reason I am asking for advice. Can the company take steps to make staff financially worse off, by changing the pension and reducing overtime rates. As I previously said a member of staff is having to hand her salary sacrifice car back because she will no longer be able to afford it with the payments being taken after tax - please correct me if you believe this to be incorrect.

We have a rep from the benefits department coming in next week and want the best way to request information from them without being sold down the river by what they say.

Thank you for your patience.

NoMore

You cannot use Salary Sacrifice if it takes you below minimum wage.

For Car Salary Sacrifice switching this to after tax would be a significant cost to the employee as they are no longer saving the income tax and the National insurance, so yes I could see that could be a problem for some people in this situation.

For pension contributions it is less of a difference because you only lose the National Insurance saving, you still get the income tax as relief in the pension, a quick calculation on somebody earning £30000 with 5% pension contributions would pay an extra ~£10 a month in National Insurance when switching to relief at source contributions compared to salary sacrifice.

So it seems to me it's the Car Scheme that will be causing the problems not the Pension.

Maybe best switching to the cutting tax forum in that case.

DRS1

I suppose one question would be how many people are actually affected by this increase in NMW? So how many are currently salary sacrificing so that their pay is below the increased NMW? If it is 1 person then they may be over-reacting. If it is 90% of the workforce then you can see that the idea of giving people a little top up to get them over the NMW AFTER the sacrifices may be a bit expensive.

Another question mentioned in the other thread is has the employer considered its own NIC position? Surely this new method will cost them a lot in extra NICs?

I am not sure about your point "So, as I understand it, money will be deducted after tax, rather than before. Which in turn is making us worse off." is actually valid. What will be making you worse off is the extra NICs but the income tax should not be changed*. [I have no idea how the car thing works - I am just talking about pension here].

*Let's say you are a basic rate taxpayer and sacrifice £500 into your pension. £500 ends up in the pension. You do not pay any tax on it because you have not had it as part of your pay. If instead you are paid the £500 as part of your pay then you pay £100 in tax leaving you with £400 in your pocket. You pay that £400 to your pension. The pension reclaims the basic rate tax (£100) and you have £500 in the pension. You may say But I paid £100 of tax that I wouldn't have done with salary sacrifice and that is true but the £100 is reclaimed by your pension and is waiting there for you for when you retire. In each case you have £500 in the pension.

DRS1

I notice there is mention of a change to overtime rates. Are these not part of the contract of employment? Maybe something for the employment board as to whether they can change the rate (as opposed to restricting how much overtime you can do).

Maybe another question would be "Is the employer in financial trouble?"