Salary Sacrifice - A no brainer?

Are you confusing the 40k limit with 40% somehow?

How did you get to the figure of £50 takehome becoming £100 in a pension? If the employer isn't sharing any of their NI savings then the numbers would be £58 => £100 as you'd be saving 40% tax and 2% NI. If your sacrifice level takes you below the higher rate tax band then that changes to 20% tax and 12% NI so £68 becomes £100. In both cases the £100 becomes £85 when you eventually withdraw it (assuming you are already saving enough to use up your PA every year in retirement).
Clearly getting the full employer match is a no-brainer. Beyond that things get a little more nuanced, especially if you are in danger of hitting the LTA as anything above LTA will effectively be taxed at 40% on the way out so tying it up in the pension for only 42% relief going in is probably not worth it, and any sacrifice that only gets the 32% relief would lose you money.


One question for you. How often does your employer let you change your contribution level? If you have complete flexibility to change it each month then you can take advantage of the fact that tax is calculated annually, but NI paycheque by paycheque. Cram all of your additional contributions over the basic + matching into a few months where you sacrifice down to minimum wage levels then a big slug of it will get both 40% tax and 12% NI relief.

Triumph13 wrote: »

One question for you. How often does your employer let you change your contribution level? If you have complete flexibility to change it each month then you can take advantage of the fact that tax is calculated annually, but NI paycheque by paycheque. Cram all of your additional contributions over the basic + matching into a few months where you sacrifice down to minimum wage levels then a big slug of it will get both 40% tax and 12% NI relief.

Most probably you have to fix a contribution rate for the year, if not it can be too complicated for payroll to adjust every month. But, I suggest you can discuss with payroll for one-off additional pension contribution (especially now - at the end of tax year), tell them this is one-off work, you wont do another one in this year 2018 (but do again March 2019 :p), this immediately bring down your taxable income. If you are on PAYE, the HMRC will refund your overpaid tax to your pay check also automatically with payroll too. :beer::beer:

If my answer above clarifies your doubt, please click the "Thank you" button. I learned a lot from fellow MSE members here, it is time to contribute back. :beer::beer:

I am doing the same thing: sacrificing just under 40k per year (they only allow a whole number for percentage, so cannot get 40k precisely).

My situation: mortgage paid off, have emergnecy fund and enough money in non tax exempt accounts to break the annual interest limit. By doing this, I am putting away nearly 60k into tax free accounts per year (with the 20k ISA allowance) and reducing the balance in my non tax free accounts.

Part of the salary sacrifice only gets basic rate tax relief, but do not forget the 12% NI too, which no longer needs to be paid. The employer also adds the employers NI which they would have paid, so I get about another 13% on top.

One more point which has not been mentioned yet: the favourable tax treatment may be taken away at some point in future, so I see it as a "last saloon" opportunity.