Pension salary exchange
Discussion
My employer has put us all into a pension salary scheme.
From what I can gather the employer pays my portion plus the employer contributions into my pension , I then have my portion taken out of my wage packet and pay less national insurance.
Surely when I come to retire this will reduce my state pension as my n.i contributions have reduced.
Secondly I'm tied into this for a year before I can opt out, so I'm £80 a week better off.
Should i make extra n.i payments or use it to overpay the mortgage ( should be paid off in 5 years already) or dump it in a isa.
From what I can gather the employer pays my portion plus the employer contributions into my pension , I then have my portion taken out of my wage packet and pay less national insurance.
Surely when I come to retire this will reduce my state pension as my n.i contributions have reduced.
Secondly I'm tied into this for a year before I can opt out, so I'm £80 a week better off.
Should i make extra n.i payments or use it to overpay the mortgage ( should be paid off in 5 years already) or dump it in a isa.
Paying less NI won't matter.
As long as you've paid in for enough time.
I.e. someone who earns £50k a year for their working life doesn't get more pension than someone who earned £30k despite them paying way more NI over the years.
If your employer is paying something in addition to your salary sacrifice you'd be mad to opt out of free money unless you desperately need it!
As long as you've paid in for enough time.
I.e. someone who earns £50k a year for their working life doesn't get more pension than someone who earned £30k despite them paying way more NI over the years.
If your employer is paying something in addition to your salary sacrifice you'd be mad to opt out of free money unless you desperately need it!
As blank says its how long you pay NI for (in years - you need 30 years for full state pension, soon to rise to 35 I think) not how much you pay in... Anyone who earns more than £109 a week pays NI and earns the same entitlement as someone who earns 10 times that.
As blank also says, the pension scheme you been enrolled in appears to a 'salary sacrifice' scheme.
What this means is that your employer takes the pension contribution off your salary before you pay any tax and NI (i.e. you 'sacrifice' some salary) - the advantage is that it then goes into your pension without you (or your employer) paying NI or tax on it. It is possible the most efficient way of paying into a pension.
If your employer is also making contributions then that is free money you can get no other way... so not taking it to pay off a mortgage seems counter intuitive unless you have a very high interest rate on your mortgage.
As blank also says, the pension scheme you been enrolled in appears to a 'salary sacrifice' scheme.
What this means is that your employer takes the pension contribution off your salary before you pay any tax and NI (i.e. you 'sacrifice' some salary) - the advantage is that it then goes into your pension without you (or your employer) paying NI or tax on it. It is possible the most efficient way of paying into a pension.
If your employer is also making contributions then that is free money you can get no other way... so not taking it to pay off a mortgage seems counter intuitive unless you have a very high interest rate on your mortgage.
timbo999 said:
As blank says its how long you pay NI for (in years - you need 30 years for full state pension, soon to rise to 35 I think) not how much you pay in... Anyone who earns more than £109 a week pays NI and earns the same entitlement as someone who earns 10 times that.
As blank also says, the pension scheme you been enrolled in appears to a 'salary sacrifice' scheme.
What this means is that your employer takes the pension contribution off your salary before you pay any tax and NI (i.e. you 'sacrifice' some salary) - the advantage is that it then goes into your pension without you (or your employer) paying NI or tax on it. It is possible the most efficient way of paying into a pension.
If your employer is also making contributions then that is free money you can get no other way... so not taking it to pay off a mortgage seems counter intuitive unless you have a very high interest rate on your mortgage.
Does the fact my employer has opted out of the 2nd tier pension make any difference?As blank also says, the pension scheme you been enrolled in appears to a 'salary sacrifice' scheme.
What this means is that your employer takes the pension contribution off your salary before you pay any tax and NI (i.e. you 'sacrifice' some salary) - the advantage is that it then goes into your pension without you (or your employer) paying NI or tax on it. It is possible the most efficient way of paying into a pension.
If your employer is also making contributions then that is free money you can get no other way... so not taking it to pay off a mortgage seems counter intuitive unless you have a very high interest rate on your mortgage.
egor110 said:
Does the fact my employer has opted out of the 2nd tier pension make any difference?
No, its probably better value for money in that you get all the benefit of your contributions. One of the stated aims of S2P was to provide more income redistribution (i.e. the wealthy subsidise the less well off) than SERPS.However, I believe S2P will be discontinued when the single tier pension is introduced (not sure when that might be...) although previous contributions will be honoured.
We are got a letter at work about Salary Sacrifice yesterday and have until 2nd November to opt out.
I have a few concerns before i make my mind up.
Every year we get a pay rise of around 2%. If on paper at least my Salary is now less then i will be looking at less of a pay increase. Also some of the longer serving guys at work are on final salary pensions so won't be affected by this. At the moment we all earn the same so come pay rise time they will get a bigger pay rise and the gap will get wider each year. Or am i missing something?
I have a few concerns before i make my mind up.
Every year we get a pay rise of around 2%. If on paper at least my Salary is now less then i will be looking at less of a pay increase. Also some of the longer serving guys at work are on final salary pensions so won't be affected by this. At the moment we all earn the same so come pay rise time they will get a bigger pay rise and the gap will get wider each year. Or am i missing something?
OP - It sounds like your employer has enrolled you into their 'Auto Enrolment' pension (as all employers have to do by law).
Part of your salary is invested each month (tax free) and your employer also invests money for you each month (at their own cost - free to you).
You can opt out whenever you want, but you will be turning down free money.
As has been said, NI contributions are not impacted at all.
Part of your salary is invested each month (tax free) and your employer also invests money for you each month (at their own cost - free to you).
You can opt out whenever you want, but you will be turning down free money.
As has been said, NI contributions are not impacted at all.
JulianPH said:
OP - It sounds like your employer has enrolled you into their 'Auto Enrolment' pension (as all employers have to do by law).
Part of your salary is invested each month (tax free) and your employer also invests money for you each month (at their own cost - free to you).
You can opt out whenever you want, but you will be turning down free money.
As has been said, NI contributions are not impacted at all.
I've been in royal mail's pension scheme since 1990 , my post was more is it worth doing the salary sacrifice which is different from your defined benefit/contribution pension.Part of your salary is invested each month (tax free) and your employer also invests money for you each month (at their own cost - free to you).
You can opt out whenever you want, but you will be turning down free money.
As has been said, NI contributions are not impacted at all.
James 33 said:
Every year we get a pay rise of around 2%. If on paper at least my Salary is now less then i will be looking at less of a pay increase.
No this isn't correct. Part of your salary will be paid onto your pension instead of directly to you so any % increase will be applied to the base number before the pension is taken out.What it does mean is if you get a 2% rise that your pension contribution will rise.
So if you get £1000 today and pay £200 of that as a salary sacrifice into your pension then after your pay rise youll
get £1020 of which £204 will go into pension and £816 will be your before tax and NI salary
keirik said:
James 33 said:
Every year we get a pay rise of around 2%. If on paper at least my Salary is now less then i will be looking at less of a pay increase.
No this isn't correct. Part of your salary will be paid onto your pension instead of directly to you so any % increase will be applied to the base number before the pension is taken out.What it does mean is if you get a 2% rise that your pension contribution will rise.
So if you get £1000 today and pay £200 of that as a salary sacrifice into your pension then after your pay rise youll
get £1020 of which £204 will go into pension and £816 will be your before tax and NI salary
James 33 said:
keirik said:
James 33 said:
Every year we get a pay rise of around 2%. If on paper at least my Salary is now less then i will be looking at less of a pay increase.
No this isn't correct. Part of your salary will be paid onto your pension instead of directly to you so any % increase will be applied to the base number before the pension is taken out.What it does mean is if you get a 2% rise that your pension contribution will rise.
So if you get £1000 today and pay £200 of that as a salary sacrifice into your pension then after your pay rise youll
get £1020 of which £204 will go into pension and £816 will be your before tax and NI salary
In most cases, raises are calculated on the pre-salary sacrifice salary. Also worth confirming they would write a letter confirming your pre-sacrifice salary for the purposes of mortgage applications etc.
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