Pension via salary sacrifice

[Phateuk]

Hi guys, I'm about to join my company pension scheme tomorrow. I have the option to either pay a set % or use a salary sacrifice. Having done some maths it looks like the SS method is a no brainer - am I missing anything?

My scenario:

Planned annual payment: £2k = £166/mon

Non SS method:
Paying £166 after deductions (£833) means my net monthly pay will be [current - £166]

SS method:
Salary reduced by 2k, deductions now only £760, take home pay only £96 less than current but £166 paid into pension.

The only downside I can see is my student loan payment will reduce and therefore slightly more interest will be paid.

Is there anything else I am missing?

(Oh, basic rate tax payer)

[rotarymazda]

You wont be paying National Insurance on the part of your salary that you are sacrificing. Neither will your employer so you should ask them if you can have it added to your pension contribution (mine does this).

[Phateuk]

rotarymazda said:

You wont be paying National Insurance on the part of your salary that you are sacrificing. Neither will your employer so you should ask them if you can have it added to your pension contribution (mine does this).

Yes, they do do this

[Eric Mc]

Salary sacrifice saves you Employee's NI and PAYE. It also saves your employer their NI contribution too. That is why they often push such schemes.

HOWEVER, you are, effectively, telling them to reduce your salary - so you will need to see how that impacts on -

your original employment contract

your own salary totals that you may want to use when -

a) negotiating future pay increases
b) informing potential new employers of your current Gross Salary
c) using P60 information for b) above and/or loan/mortgage applications

[sumo69]

No brainer - go SS.

David

[Phateuk]

Thanks for the replies, confirms my thoughts

Re loans, mortgages and pay rises, they use the pre-SS figures so all seems good - just wish I'd started one sooner (currently 29 )

[Eric Mc]

His pension my be different. Some pension contributions are paid out of Net. Some are paid out of Gross.

A lot of people are unsure of the way tax relief is given for their particular pension.

[Eric Mc]

If it is coming out of Gross - then you are correct.

[westberks]

swerni said:

Eric Mc said:

His pension my be different. Some pension contributions are paid out of Net. Some are paid out of Gross.

A lot of people are unsure of the way tax relief is given for their particular pension.

We work together and are in the same pension program, it comes from gross salary.
He isn't questioning that, he is saying it's still at the lower tax rate, but to me, that isn't logical

You are right, with SS you aren't actually making a contributions as the employer is as a business expense.

If you are a higher rate tax payer then the sacrificed element is taken off the top number so nothing to claim back.

For mortgage applications its less of an issue under the new rules as most lenders now deduct pension contributions as an expense, or work out affordability on net salary, which isn't affected by SS.

[Eric Mc]

They are much better at recognising this technique. Salary Sacrifice schemes have been around for decades covering all sorts of subjects such as profit share, work related bicycles etc.

What it does mean is that your P60 (which is a legal document) does not normally show your correct salary (as the "Gross" salary shown on a P60 will be AFTER the salary sacrifice amount has been deducted.

So you will need additional documentary evidence for your TRUE salary level.