Smarter Contributions pension

[vrsmxtb]

Can anyone with any knowledge of the pension system comment on the smarter contributions scheme of paying? My employer is changing to this next month, it all sounds a no brainer but wondered if there's any negatives they're not telling me. Basically they pay your pension before they pay you, resulting in less National Insurance and marginally higher take home pay. Your base salary remains unchanged for calculating benefits / profitshares etc.

[PurpleMoonlight]

It's the salary sacrifice method and has been round for donkeys years.

As you say, you save NI and so does the employer. No other benefit.

[Ginge R]

It isn't their job to tell you, in fairness. Look out for drops in how your estate is protected in respect of death benefits. It is usual to find any lump sum payable on death to be a multiple of one's salary, in which case salary sacrifice would reduce that payment. Check too, how a lower salary might affect entitlement to various state benefits and your ability to borrow money.

[vrsmxtb]

Ginge R said:

It isn't their job to tell you, in fairness. Look out for drops in how your estate is protected in respect of death benefits. It is usual to find any lump sum payable on death to be a multiple of one's salary, in which case salary sacrifice would reduce that payment. Check too, how a lower salary might affect entitlement to various state benefits and your ability to borrow money.

The way it's worded in the info booklet I got, your base salary figure doesn't decrease in terms of what it has been declared at for use calculating the things you mention. Ok, seems a no brainer then.

[coetzeeh]

Salary sacrifice at my place of work has no adverse impact to my contracted benefits incl death in service life insurance. SS should not impact your benefits but yes it may impact you ability to borrow as your P60 will show reduced taxable earnings.

[Ginge R]

Some useful state benefits stuff here (about quarter of the way down);

http://www.hmrc.gov.uk/specialist/salary_sacrifice...

Many mortgage companies will take SS into account these days when considering an application for a loan - but not all.

[PurpleMoonlight]

swerni said:

PurpleMoonlight said:

It's the salary sacrifice method and has been round for donkeys years.

As you say, you save NI and so does the employer. No other benefit.

Other then not paying tax on the contribution?

Pension contributions are tax free via the other methods too (if within regulatory limits) so it's not relevant to the extra benefit this thread is about.

[Zigster]

I've helped a number of companies implement salary sacrifice for pension contributions (and other benefits).

It would usually (always?) be structured such that you retain the same notional basic salary for other benefits like like desth in service benefits. In the extreme, I think there can be issues around certain State benefits but, if it is an issue for anyone, it would usually only be for people at the bottom end of the wage scale (say part-timers or minimum wage earners).

[Zigster]

swerni said:

Do you not have to claim them back in other methods?

Good point.

If you are a higher or additional rate tax payer then, in some circumstances, you would only get basic rate tax relief at the point of payment and have to claim the additional relief due via your tax return.

This would apply if you had a (group) personal pension and paid contributions yourself in addition to any paid by your employer.

So, a further advantage of salary sacrifice is that all contributions are effectively contributions by your employer so are paid gross of tax even if the "vehicle" used is a personal pension rather than an occupational pension scheme.

[PurpleMoonlight]

If Relief at Source operates and the member pays higher rate tax then yes the difference between basic rate tax and higher rate tax is reclaimed annually.

But dependent on your point of view this could be considered an advantage over salary sacrifice, because the whole gross pension contribution goes into the pension arrangement with salary sacrifice whereas some cash is refunded to the member with relief at source.