Automatic Enrolment Pension - Salary exchage?
Discussion
So it's here, and I am going to start contributing, rather than opting out. We were explained that it's a min 1%/1% contributions, which is set to go up over the next few years, my employer will also raise it to match when it goes up. Currently it's just NET, but we are being offered a salary exchange, to take it from gross.
As far as I could see, by standard I contribute £80 and £20 comes from tax rebate (as it's capped at the higher rate), then my company match it. So £80 net to me, and I get £200 in the pot.
With salary exchange, I volunteer up £46 (NET), my company get relief, but give me 50% of it back, and them match that, giving me £220 in the pot. So I'm quids in. (this was how it was explained)
But, it changes my salary figure. How will this affect mortgages/finance in the future? You now need to provide cost of living, disposable cash etc, so surely either way, my pension is going to be taken into account? In fact, surely it's better to be on the salary exchange, as it's less from my take home?
As far as I could see, by standard I contribute £80 and £20 comes from tax rebate (as it's capped at the higher rate), then my company match it. So £80 net to me, and I get £200 in the pot.
With salary exchange, I volunteer up £46 (NET), my company get relief, but give me 50% of it back, and them match that, giving me £220 in the pot. So I'm quids in. (this was how it was explained)
But, it changes my salary figure. How will this affect mortgages/finance in the future? You now need to provide cost of living, disposable cash etc, so surely either way, my pension is going to be taken into account? In fact, surely it's better to be on the salary exchange, as it's less from my take home?
PurpleMoonlight said:
In that case there is only a small advantage to you.
You will get higher rate tax relief on your contribution via your annual tax return.
The main saving in salary sacrifice is NI contributions, but as you are over the UEL you only save 2% of your contribution.
A benefit is a benefit though! You can swap back once on salary exchange, but wanted to know if it's going to affect lending power really. You will get higher rate tax relief on your contribution via your annual tax return.
The main saving in salary sacrifice is NI contributions, but as you are over the UEL you only save 2% of your contribution.
illmonkey said:
A benefit is a benefit though! You can swap back once on salary exchange, but wanted to know if it's going to affect lending power really.
Mortgages aren't my area but probably not.Your net income after pension provision is broadly the same, so it shouldn't affect borrowing potential.
Jockman said:
It's an interesting point. Are personal pension contributions included for mortgage affordability assessments or are they treated like student loans?
Perhaps one for Sarnie?
Student loans are treated in the exact same way as any other loan........it's a deduction on your net income, thus it impacts your affordability.Perhaps one for Sarnie?
Pension deductions are slightly more onerous, probably two thirds of lenders will take Pension deductions as commitments, for the exact same reasons as above.......it leaves you with less money each month, therefore impacting your ability to repay a mortgage.
There are some lenders however who see it a bit more pragmatically and understand that it's not debt repayment/dead money and won't deduct the contributions from your affordability calculations.......
Sarnie said:
Student loans are treated in the exact same way as any other loan........it's a deduction on your net income, thus it impacts your affordability.
Pension deductions are slightly more onerous, probably two thirds of lenders will take Pension deductions as commitments, for the exact same reasons as above.......it leaves you with less money each month, therefore impacting your ability to repay a mortgage.
There are some lenders however who see it a bit more pragmatically and understand that it's not debt repayment/dead money and won't deduct the contributions from your affordability calculations.......
Thanks for posting Sarnie, figured you'd get involved!Pension deductions are slightly more onerous, probably two thirds of lenders will take Pension deductions as commitments, for the exact same reasons as above.......it leaves you with less money each month, therefore impacting your ability to repay a mortgage.
There are some lenders however who see it a bit more pragmatically and understand that it's not debt repayment/dead money and won't deduct the contributions from your affordability calculations.......
Not forgotten about you, and your monthly updates, just biding my time.
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