Salary Sacrifice

Dick_here

I've got the option to do this, i.e. it means (as I understand it) that my official taxable salary will reduce as my pension contributions will not be liable to tax.

However, reducing my salary will reduce any possible annual bonus, life assurance cover etc, redundancy payout even should that happen !

Is it worth it for the tax saving (which I reckon is around £350 this year) ?

Andy_L

Your pension contributions are tax free anyway. Salary sacrifice reduces the employers NI contributions which they then pass some or all of onto you as extra contributions
Generally the agreement with your employer retains the "pre-sacrifice" salary for calculating bonuses overtime etc. What do they say in your case?

Dick_here

No, its a T&C change that formally reduces salary - for bonus and everything else. So is it worth it ?

jamesd

Do you get any of the employer NI contributions that they save added? Roughly what's your total annual taxable income - below 38k, above 40k, in between? More than your annual pension contribution over 40k? Roughly what is your own current annual pension contribution amount, not counting any employer part?

Murdina

you're quite right to identify that in situations where it is your pure salary that counts, you may lose out. I heard of a case where someone cut their salary from their own company right back to save on tax (replacing it with dividends) and when they became ill, got little or no pay out from their health insurance because they had not had "salary". It's definitely an aspect to factor in when making comparisons.
Also don't forget that, if you change jobs, and depending on quite how salary negotiations work in your industry, a new employer may also only benchmark your salary and not the benefits in agreeing what to pay you.

Dick_here

The salary I'd be sacrificing would be around £1500, so @ 22% tax that saves me £330 tax. A good year's bonus would be 10%, so I'd be losing £150 there (potentially) plus other bits. Still seems worth it on balance though, or am I missing any other negatives ?