Pension Contributions via Salary Sacrifice

[matt21]

My employer has recently asked if I would like to change my pension contributions via Salary Sacrifice. If I am reading it right it helps bring down my NI so take home goes up, but I guess also benefits the employer who pays less NI too.

Has anyone done this and is there any real impact/downside? I currently contribute 10% of my salary so goes my employer.

[markiii]

been doing it for years, no real downside

[GR86]

Employee and employer both save NI so yes go for it. I'm in a salary sacrifice scheme.

Only downside would be for low earners where they aren't paying enough NI for state pension or certain benefits. This won't apply to most people.

[The Leaper]

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

[matt21]

Thanks guys. Net pay seems to be up £300 per year due to lower NI, but from an online calculation total pension contributions up £1200/year. Does that make sense? Can't work out how.

Also, I have share contributions. Should that % be on my original salary or would it drop to the salary sacrifice salary?

[Matt..]

Related to this question...

Pension funds are up and down at the moment obviously. What is the consensus on whether to reduce or increase salary sacrifice percentage for pension payments now?

[GR86]

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

Is that really the case? I know it's a contractual decrease of your salary in exchange for a pension contribution but I have never heard of anyone looking at the size of your employee pension contribution when calculating a redundancy payment.

[sociopath]

I think you may be doing your maths wrong. If you sacrifice your salary for pension, your gross salary goes down by the amount you've sacrificed, but the NI you pay only goes down by the NI %contribution of that amount.

You can't save more. NI than you've sacrificed

[GR86]

Perhaps contributions paid over look higher as you get the tax relief on your payslip where before the pension company added the tax relief to your pension pot?

[markiii]

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

you will usually find the company consider you to have "base" salary and one for after salary sacrifice

benefits are based on the "base" contractual salary so not affected. Though it is worth checking

[GR86]

markiii said:

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

you will usually find the company consider you to have "base" salary and one for after salary sacrifice

benefits are based on the "base" contractual salary so not affected. Though it is worth checking

Agreed I would expect your share contributions to stay the same.

[The Leaper]

GR86 said:

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

Is that really the case? I know it's a contractual decrease of your salary in exchange for a pension contribution but I have never heard of anyone looking at the size of your employee pension contribution when calculating a redundancy payment.

They don't look at the size of your pension contribution, they look at the size of your salary, which, because you've SS'd, is lower than it was before SS.

R.

[richardxjr]

Remember that for mortgage applications too, your salary has effectively been reduced.
Can also work for you in things like assessing household income for kids' uni living allowance loan.

My (SME) employer adds the ER NI saving on too for salary sacrifice.

[snotrag]

markiii said:

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

you will usually find the company consider you to have "base" salary and one for after salary sacrifice

benefits are based on the "base" contractual salary so not affected. Though it is worth checking

This. Where I work everyone has a 'reference' salary. My 'reference' salary is the same as the guy who does the same job sat next to me.

However our actual Salaries may be different - I salary sacrifice for my pension (because why wouldnt you), and also salary sacrifice for other things, childcare, cycle-to-work etc. So everyone will be different.


It is the 'reference' salary that is used when calculating bonuses, pay rises etc.


The only time this could cause an issue is if it drops your salary below Minimum wage, or if you are completely reliant on that 'headline' figure being as high as possible in order to get a massive mortage, or loan etc.

[boombang]

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

My company provides two figures when you use SS. A reference salary, used for pensions, benefits, share awards etc. and an adjusted pay net of SS.

I have read where some companies have a Defined Benefit pension using average pay over a period that SS can impact your pension. This may be what you are referring to.

[The Leaper]

boombang said:

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

My company provides two figures when you use SS. A reference salary, used for pensions, benefits, share awards etc. and an adjusted pay net of SS.

I have read where some companies have a Defined Benefit pension using average pay over a period that SS can impact your pension. This may be what you are referring to.

Following on from my post and the subsequent comments, surely the message is: sort this point out with your employer before deciding to take up SS. And get everything in writing too. Better to be certain at the start than regretful at the end.

R.

[boombang]

My work handbook for example confirms everything other than what you receive in pay that month is based on reference salary. Similar info should be available either by default or on request from any company.

[Mazinbrum]

snotrag said:

markiii said:

The Leaper said:

Only potential downside is that SS means that your salary is actually reduced, so any salary related benefits will be reduced accordingly. This will apply to redundancy pay too.
R.

you will usually find the company consider you to have "base" salary and one for after salary sacrifice

benefits are based on the "base" contractual salary so not affected. Though it is worth checking

This. Where I work everyone has a 'reference' salary. My 'reference' salary is the same as the guy who does the same job sat next to me.

However our actual Salaries may be different - I salary sacrifice for my pension (because why wouldnt you), and also salary sacrifice for other things, childcare, cycle-to-work etc. So everyone will be different.


It is the 'reference' salary that is used when calculating bonuses, pay rises etc.


The only time this could cause an issue is if it drops your salary below Minimum wage, or if you are completely reliant on that 'headline' figure being as high as possible in order to get a massive mortage, or loan etc.

This is correct, my early leaver payment was based on my reference salary. You weren’t allowed to salary sacrifice below minimum wage where I worked.

[akirk]

be aware also of various allowances - e.g. pension has an annual allowance and a lifetime allowance - beyond which you will be taxed.
how that allowance is calculated will vary depending on type of pension - this is one of the huge issues for the NHS at the moment, where the allowance is calculated based also on fund growth, so you can very easily get caught out... (senior doctors are retiring early because to stay means they effectively will be paying to work) while it won't affect every one, pensions are not always as simple as they are described

[bmwmike]

boombang said:

My work handbook for example confirms everything other than what you receive in pay that month is based on reference salary. Similar info should be available either by default or on request from any company.

Same. Never heard of a company chipping you down based on the sacrifice because at the end of the day you are still paid the full / reference amount.

Best to check though etc