Switching work pension schemes

JoeCrystal

Is it not possible to do salary sacfise into NEST instead?

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82068862#Comment_82068862

Yes, perfectly possible - but that isn't the problem OP is trying to address from their personal perspective (ie contributions charge/lack of fund choice).

Having two schemes gives a problem in terms of auto-enrolment. One has to be the designated scheme otherwise how does payroll know which to use?

maxaxe

https://forums.moneysavingexpert.com/discussion/comment/82068718#Comment_82068718

Ideally everyone would move to the new salary sacrifice provider because I suspect it will be better for all my colleagues. New starters would move to the new provider only. NEST will hopefully be phased out.

The new 2029 rules are not clear yet? Even after the changes, it seems salary sacrifice will be better financially for the company and employees in most cases? But they do know about it and are aware that there will be more admin if we have another provider. Can you offer more information on what admin might be needed for the 2029 rules change?

My estimate of savings for NI for the company is £10k - £15k per year. In part because some colleagues are contributing more than the minimum for auto enrollment. And in part because I plan to greatly increase my salary sacrifice amount. This is also my motivation to move the company pension scheme - I want to cut my personal NI and student loan (tax) payments.

Can you please explain what a non contributory scheme is?

maxaxe

One part of the hope is that we can get this change made whilst there are fewer people to ask these questions, then phase out NEST in the future.

https://forums.moneysavingexpert.com/discussion/comment/82068767#Comment_82068767

The company is aware that there is more admin required for a new scheme. Hopefully the savings will be worthwhile.

hugheskevi

The new 2029 rules are not clear yet? Even after the changes, it seems salary sacrifice will be better financially for the company and employees in most cases? But they do know about it and are aware that there will be more admin if we have another provider. Can you offer more information on what admin might be needed for the 2029 rules change?

The £2,000 limit seems set in stone, barring any major policy revisions. That is the key thing to ensure there is a plan for - what, exactly, happens to employees contributing more than £2,000 at the start of 2029/30.

At that point, the employer NI liability on pension contributions will increase, so what does the company do to recover the higher employer NI from their remuneration costs (as it is an additional employment cost pressure for the employer)? Or do they just absorb the costs, given that the cost will have to be borne if the employee takes the money as salary instead of pension contribution. Whatever is done, all parties should be fully on-board.

It might be easiest from a payroll perspective just to not operate salary sacrifice beyond £2,000 but that is an employer decision. They could pre-empt 2029 if doing that, but probably better to just pre-commit in the scheme design to make that change in 2029 if that is the path they choose.

Can you please explain what a non contributory scheme is?

If an employer is operating a statutory minimum, salary sacrifice, scheme, then they have member contributions of 5% paid via a reference salary and a reduced actual salary and employer contributions of 3% headline, and an additional 5% after salary sacrifice. That might be particularly attractive if there are low paid workers who couldn't do salary sacrifice due to minimum wage, and so would have to have an alternative - probably relief at source - option in addition to salary sacrifice available.

Instead of all the admin about reference salaries and operating both salary sacrifice and net pay and monitoring minimum wage against salary paid, some employers have just put in statutory minimum schemes, but with all of the contributions being employer contributions, ie, non-contributory for the employee. That means few if any members are going to opt-out too, further reducing admin. You can have further voluntary contributions either by salary sacrifice or otherwise, according to preference - in your case, you would have a strong motivation for those further contributions to be by salary sacrifice. From 2029, it would also increase the total amount that can benefit from no employer/ee NI.

To manage costs, the change probably needs to be made in conjunction with pay reviews, and ensure employees understand that rather than higher pay, they are getting lower pension contributions. Unless the workforce is numerate, that might be a problem to communicate.

My estimate of savings for NI for the company is £10k - £15k per year. In part because some colleagues are contributing more than the minimum for auto enrollment. And in part because I plan to greatly increase my
salary sacrifice amount.

So perhaps 2 years of £10-15k savings by your estimates, falling to a maximum of £4,500 from 2029. Worth ensuring the employer is aware of the assumptions, and the fall in savings from 2029 - especially as that £2,000 limit may well be frozen in cash terms, and the savings from salary sacrifice would then become more difficult to justify each year for the employer as they decline in real terms.

maxaxe

https://forums.moneysavingexpert.com/discussion/comment/82069029#Comment_82069029

It seems that post 2029, the default should be that the employer absorbs the NI charged on amounts over £2000. To enforce a maximum salary sacrifice amount of £2000 NI seems pointless because the employee is forced to take more salary than they'd like, and the employer still has to pay the same 15% NI. It does not benefit the employer, but is detrimental to the employee. Why have such a policy?

From 2029, it would also increase the total amount that can benefit from no employer/ee NI.

Can you explain the above statement more please? Why is this the case.

A noncontributory scheme sounds amazing, but also sounds like it would not be cost neutral. I'd like to think my colleagues are all numerate, but even so, there are legitimate concerns around accessibility of money before 57 (or whatever age we eventually can access pensions). So moving to this system may cause some issues.

And finally, your costings are probably broadly correct. But it will scale in the future as/if the company does well and grows headcount. Making the change now makes sense with that in mind as well, as fewer people means it's simpler to switch.

hugheskevi

To enforce a maximum salary sacrifice amount of £2000 NI seems pointless because the employee is forced to take more salary than they'd like, and the employer still has to pay the same 15% NI. It does not benefit the employer, but is detrimental to the employee. Why have such a policy

Beyond £2,000 there is no NI saving to the employer or the individual from salary sacrifice. So individuals wishing to contribute more to a pension than £2,000 can do so to a personal pension and get the same benefits.

The employer avoids the administration of having to apply employer NI and employee NI to pension contributions, if it is an administrative inconvenience. If it is no issue for them, they can allow anything.

Worth noting there could be a Student Loan saving to individuals sacrificing beyond £2,000 that would not be available via contributions to a personal pension - that is unlikely to be much of a concern of an employer though.

From 2029, it would also increase the total amount that can benefit from no employer/ee NI.

Can you explain the above statement more please? Why is this the case.

If an employer offers 3% employer contribution and 5% salary sacrifice contribution, that 5% counts toward the £2,000 salary sacrifice limit. If an employer offers 8% employer contribution without any sacrifice, the full £2,000 limit is available for contributions above the standard amount.

A noncontributory scheme sounds amazing, but also sounds like it would not be cost neutral. I'd like to think my colleagues are all numerate, but even so, there are legitimate concerns around accessibility of money before 57 (or whatever age we eventually can access pensions). So moving to this system may cause some issues.

The employer has a remuneration cost. That is usually dominated by pay, with pension being a noticeable cost. Remuneration can be the same with:

• Higher pay
• Higher member contributions
• Lower employer contributions

As compared to a non-contributory scheme:

• Lower pay
• Lower member contributions
• Higher employer contributions

In the first case, members contractually reduce pay in order to reduce member contributions, and increase employer contributions. That is salary sacrifice, and achieves the same as the second case. Take-home pay is the same in either case so it is cost neutral unless members are opting out of the pension scheme to forego the 3% employer contribution in return for keeping the 5% (before tax) employee contribution.

However, try explaining that to employees - some will be convinced they are being swindled through a zero or low pay award, so changing to it could cause issues. Individuals are usually very attached to higher pay over pension.

dunstonh

It will be cost neutral (or better) for the company because of the savings from NI paid by the employer when switching to a salary sacrifice scheme.

Which they can do with Nest at no cost to them.

The company is aware that there is more admin required for a new scheme. Hopefully the savings will be worthwhile.

If they stick with Nest, there is virtually no admin. Just a quick change for each employee once when submitting the schedules and it's done thereafter.