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  • FIRST POST
    • Alexland
    • By Alexland 7th Nov 18, 9:41 PM
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    Alexland
    Increasing salary sacrifice before maternity
    • #1
    • 7th Nov 18, 9:41 PM
    Increasing salary sacrifice before maternity 7th Nov 18 at 9:41 PM
    Hi,

    My wife is pregnant again, likely to take 12 months maternity leave and may decide not to return. The birth is likely to align to the start of the new tax year. Am I correct in understanding that the employer will be required to honor her normal salary sacrifice monthly DC pension contributions (regardless of declining pay) during the maternity leave? As such it may be beneficial for her to increase the percentage salary sacrifice pension contribution now 4+ months in advance of the maternity leave starting? The below guidance looks too good to be true?

    http://www.mattioliwoods.com/latest-news/dont-be-left-holding-the-baby-employer-responsibility-during-an-employees-maternity-leave

    Employer pension contributions should continue during any paid period of maternity leave at the same rate as before leave, based on the employee’s actual salary. Any matching employee’s pension contribution only needs to be based on the pay they are receiving at the time (i.e. SMP).

    However, ‘normal’ under a sacrifice arrangement may be the total pension contribution, i.e. if an employer contribution is 5% and the employee’s 3% into a DC scheme. The employee makes their contribution by salary sacrifice, making the employer’s normal contribution 8%. As a salary sacrifice arrangement is a contractual change, the employer is required to continue to contribute 8% as if the employee were in receipt of full pay.

    Employees in receipt of statutory maternity/paternity/ adoption pay cannot have a contribution deducted as statutory payments are protected earnings. As such, the amount cannot be recovered from the employee, so the employer must fund the full contractual employer pension contribution.
    Alex
    Last edited by Alexland; 07-11-2018 at 9:53 PM.
Page 1
    • Albermarle
    • By Albermarle 8th Nov 18, 11:25 AM
    • 196 Posts
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    Albermarle
    • #2
    • 8th Nov 18, 11:25 AM
    • #2
    • 8th Nov 18, 11:25 AM
    I can not comment on the government advice except to say it does look a bit too good to be true.
    However I do know that some employers will only allow you to review your salsac/contribution % once a year , to keep administration issues down.
    • Thrugelmir
    • By Thrugelmir 8th Nov 18, 11:58 AM
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    Thrugelmir
    • #3
    • 8th Nov 18, 11:58 AM
    • #3
    • 8th Nov 18, 11:58 AM
    A consideration for the employer is that salary sacrifice schemes should have clealy defined rules. Would be questionable if her salary was reduced for the duration of the maternity leave, then increased upon her return to work for example.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Alexland
    • By Alexland 8th Nov 18, 12:27 PM
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    Alexland
    • #4
    • 8th Nov 18, 12:27 PM
    • #4
    • 8th Nov 18, 12:27 PM
    Our employer's rules are fairly flexible on modifying pension salary sacrifice to accomodate bonuses, etc so that shouldn't be a problem. I just slightly modified mine to more precisely avoid higher rate tax this year.

    At the moment, as she is part time so basic rate, her total pension contribution is only 25% but some quick maths suggests it might be worth increasing by around 40% so that the employer will be required to continue making pension contributions where she would otherwise have pay reductions during the year.

    It would still put her above minimum wage for her contracted hours and she should still be able to use her personal allowance against the remaining enhanced maternity, taxable benefits (car, medical, etc) and the 39 weeks statuatory maternity pay for which the government wouldn't allow any employer deductions.

    I'm scratching my head thinking this is worth thousands of pounds (in addition to the tax/NI saving) during the year so what's the catch? Other than maybe upsetting the employer but I am good friends with her management chain and it's not their money - they will just see less of a reduction in their costs each month.

    Alex
    Last edited by Alexland; 08-11-2018 at 12:43 PM.
    • Thrugelmir
    • By Thrugelmir 8th Nov 18, 4:55 PM
    • 60,971 Posts
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    Thrugelmir
    • #5
    • 8th Nov 18, 4:55 PM
    • #5
    • 8th Nov 18, 4:55 PM
    Our employer's rules are fairly flexible on modifying pension salary sacrifice to accomodate bonuses, etc so that shouldn't be a problem.
    Originally posted by Alexland
    HMRC are the final arbritrators. Employers just need to stay within the permissable limits of flexibility.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Snakey
    • By Snakey 8th Nov 18, 7:50 PM
    • 1,092 Posts
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    Snakey
    • #6
    • 8th Nov 18, 7:50 PM
    • #6
    • 8th Nov 18, 7:50 PM
    I considered this, back when I was putting £40k or £50k a year in to my pension and only paying basic rate tax. They were giving me a hard time over something or other and I thought wouldn't it be funny to spend the next 4-5 years having three kids one after the other and they can pretty much bankroll the whole thing and there'll be nothing they can do about it.

    I didn't do it because it involved having a baby - the opportunity cost might be less on a lower salary but raising kids would soak up any "profit" I might have made not to mention the effort involved (suppose I could have put them out for adoption but it all started to sound a bit complicated) - but I looked at it pretty closely just for fun and couldn't find any reason why it wouldn't work.

    My situation was different in that I'd been doing that level of salary sacrifice genuinely for a few years with maternity leave being the furthest thing from my mind, so they would struggle to justify an accusation of gaming the system, but I don't recall seeing any sort of "...unless the employee is obviously taking the mickey" get-out for the employer.

    Would be interested to know how you get on!
    • pinknsparkly
    • By pinknsparkly 8th Nov 18, 8:15 PM
    • 119 Posts
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    pinknsparkly
    • #7
    • 8th Nov 18, 8:15 PM
    • #7
    • 8th Nov 18, 8:15 PM
    Hi Alex,

    I'm afraid I have no idea about your situation but I echo the above poster when I say please let us know the outcome. This isn't something I could do (as an NHS employee) but if (hopefully when!) we have a child, our intention is for me to take the first six months as maternity leave and my husband to take the following six months as shared parental leave so if we could bump up his pension while he's off then we'd definitely consider it! He currently pays around 15% total (13% from his salary and 2 or 3% employer) so even that continuing to be contributed would be great. It's not something I'd ever considered before - I assumed your NI contributions were still made for SSP but nothing put into your workplace pension.
    Plan: buy a house in summer 2018 | spring 2019 | winter 2018

    Realistic savings goal: 10% house deposit. DONE
    Super ambitious savings goal: 15% house deposit. DONE
    Currently on 13.2% (2nd Apr '18) | 14.1% (2nd Jul '18) | 15.6% (31st Jul '18) | 16.9% (1st Sep '18) | 18.0% (6th Oct '18) | 18.4% (31st Oct '18) 23.9% (2nd Nov '18)
    • Alexland
    • By Alexland 8th Nov 18, 9:17 PM
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    Alexland
    • #8
    • 8th Nov 18, 9:17 PM
    • #8
    • 8th Nov 18, 9:17 PM
    I just checked my wife's pension contributions from her previous year of maternity leave and it looks like our employer held their 10% contribution level flat but reduced her 15% salary swap contributions in line with her reducing pay during the year. Is this right? I thought the whole point of salary sacrifice was that the whole 25% becomes an employer contribution?

    Alex
    Last edited by Alexland; 08-11-2018 at 9:20 PM.
    • kidmugsy
    • By kidmugsy 8th Nov 18, 10:30 PM
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    kidmugsy
    • #9
    • 8th Nov 18, 10:30 PM
    • #9
    • 8th Nov 18, 10:30 PM
    I just checked my wife's pension contributions from her previous year of maternity leave and it looks like our employer held their 10% contribution level flat but reduced her 15% salary swap contributions in line with her reducing pay during the year. Is this right? I thought the whole point of salary sacrifice was that the whole 25% becomes an employer contribution?
    Originally posted by Alexland
    I don't see what you mean. Could you rewrite that, please, distinguishing between percentages sacrificed and amounts contributed?
    Free the dunston one next time too.
    • Alexland
    • By Alexland 8th Nov 18, 11:41 PM
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    Alexland
    I don't see what you mean. Could you rewrite that, please, distinguishing between percentages sacrificed and amounts contributed?
    Originally posted by kidmugsy
    Not sure how I can make it much clearer. The employee offers to sacrifice 15% of their salary and the employer adds up to 10% matched so the total employer contractual contribution becomes 25% and the employee is paid 85%. However the employer has not been maintaining the full 25% contribution during the maternity year. They have been varying the 15% based on the reducing monthly pay as if it was a non salary-sacrificed employee contribution. Surely this isn't correct given the guidance in the top post?

    Alex
    • Thrugelmir
    • By Thrugelmir 8th Nov 18, 11:44 PM
    • 60,971 Posts
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    Thrugelmir
    I just checked my wife's pension contributions from her previous year of maternity leave and it looks like our employer held their 10% contribution level flat but reduced her 15% salary swap contributions in line with her reducing pay during the year. Is this right? I thought the whole point of salary sacrifice was that the whole 25% becomes an employer contribution?

    Alex
    Originally posted by Alexland
    What did her revised issued contractual terms say after the sacrifice was made.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • kidmugsy
    • By kidmugsy 8th Nov 18, 11:48 PM
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    kidmugsy
    Not sure how I can make it much clearer.
    Originally posted by Alexland
    You can make it clearer by accompanying a %age by a statement of what you mean the %age to be a %age of. It's entirely opaque at the moment. You presumably know what you mean by I am not privy to that implicit knowledge.
    Free the dunston one next time too.
    • Alexland
    • By Alexland 8th Nov 18, 11:53 PM
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    • 2,892 Thanks
    Alexland
    What did her revised issued contractual terms say after the sacrifice was made.
    Originally posted by Thrugelmir
    Our employer doesn't issue us any paperwork when we change the percentage. We just raise a call with HR asking for a one off or ongoing salary sacrifice change and they reply confirming they have actioned the request and from when we should see the payroll change. They sent us an email about 10 years ago to inform us they were automatically switching our pension contributions to salary sacrifice but it didn't have any detail. This situation is too niche to be mentioned in the pension or maternity policies.

    Alex
    • Alexland
    • By Alexland 9th Nov 18, 12:03 AM
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    Alexland
    You can make it clearer by accompanying a %age by a statement of what you mean the %age to be a %age of. It's entirely opaque at the moment. You presumably know what you mean by I am not privy to that implicit knowledge.
    Originally posted by kidmugsy
    So as a simple example if the employee salary is set at £25k then the company would offer up to £2.5k (10% matched) into the pension. By sacrificing £3.75k (15%) the employer pension contribution increases to £6.25k (25%) and the employee is only paid £21.25k (85%) but less after tax etc. My understanding from the top post is that during maternity the company is required to continue paying their £6.25k (1/12th per month) even though the employee's pay is gradually reducing down to Statutory Maternity Pay and then nothing during the 12 month period?

    Alex
    • Imelda
    • By Imelda 9th Nov 18, 8:04 PM
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    Imelda
    Would this be treated the same way as salary sacrifice for childcare vouchers? There was a ruling saying that employers did not need to continue to pay them during maternity leave.
    Saving for an early retirement!
    • Paul_Herring
    • By Paul_Herring 9th Nov 18, 8:14 PM
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    Paul_Herring
    Would this be treated the same way as salary sacrifice for childcare vouchers? There was a ruling saying that employers did not need to continue to pay them during maternity leave.
    Originally posted by Imelda
    During maternity leave, or from maternity payments? Subtle difference...

    Is it this you're referring to?: http://www.childcare-vouchers.net/parents/faqs/am-i-allowed-to-receive-childcare-vouchers-or-any-other-benefits-whilst-on-maternity-leave/

    Am I allowed to receive childcare vouchers, or any other benefits, whilst on maternity leave?
    The simple answer is yes you are but you are also subject to any terms and conditions agreed with your employer.
    You cannot have any deductions by way of a salary sacrifice from any statutory payments. You cannot salary sacrifice from statutory maternity or paternity pay. And this issue is not simply a childcare voucher issue, it applies to all benefits offered to you.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • Alexland
    • By Alexland 9th Nov 18, 8:35 PM
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    Alexland
    So are we coming to a consensus that the employer might have the right to have a policy that they do reduce their sal sac contributions during maternity leave if they are not backed by sufficient maternity earnings? In which case the top post guidance for employers is incorrect?
    • Thrugelmir
    • By Thrugelmir 10th Nov 18, 12:02 AM
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    Thrugelmir
    In which case the top post guidance for employers is incorrect?
    Originally posted by Alexland
    Seems totally correct.

    My questions would relate more to your employers scheme. As doesn't appear to be a pure salary sacrifice scheme, with the employer making matched contributions up to 10% of the amount sacrificed. Appears more of an artificial arrangement to save on both Employees and Employers National Insurance contributions. As I mentioned previously there's no contractual paperwork to support the payroll changes.

    Off the top of my head. Maternity pay, student loan repayments holiday pay and pay in lieu of notice could be effected by arbitarily adjusting gross pay.

    All in all seems too flexible.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Alexland
    • By Alexland 10th Nov 18, 8:15 AM
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    Alexland
    Hmm I will ask my wife to raise a call with our company's HR to understand the basis for why they reduced the salary sacrifice pension contribution during her previous maternity.

    We will probably increase her contribution rate first incase the employers agrees their responsibility and puts an upper cap on % sal sac to limit their exposure to the issue.
    Last edited by Alexland; 10-11-2018 at 8:21 AM.
    • User6565
    • By User6565 11th Nov 18, 11:22 AM
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    User6565
    It proved quite lucrative for me. Normally I salary sacrifice 10% of my salary and my employer contributes 10%. While on mat leave I paid the 10% of whatever I was earning until I hit SMP and I paid in 0. My employer carried on paying their usual contribution regardless of my actual salary until I came back. This time round they will also pay my childcare vouchers as well as usual pension contributions. I don’t think enough people recognise the pension as a great benefit during mat leave as they just look at maternity pay and not the whole package.
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