Salary Sacrifice??

A question about : Salary Sacrifice??

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Hi

Does anyone have any information on a method of payment called salary sacrifice? I'm starting a pension and the finance director at work said it is a good way of paying, because the tax/NI contributions are lower. Anyone heard anything about it? Thanks

Ben.

Best answers:

• Currently when you make a pension contribution, you will have already paid National Insurance (NI) contributions. By sacrificing a portion of your salary, you can keep the same take home pay, as you would be paying a contribution to the pension anyway, but increase your pension contributions by the NI savings. In addition your employer will be saving 12.8% employer NI contributions. These savings should also be passed on to you, giving a further increase in your contribution.
  All seems great at this stage, if you have followed.
  By reducing your salary voluntarily you could fall below the national insurance contribution levels for certain state benefits such as Statutory Maternity Pay.
  You should however consider some of the following disadvantages
  • If you are in receipt of child tax credit and/or working tax credit should find out how this will be affected. A lower salary may mean more working tax credit but this would be offset by less child tax credit due to lower childcare costs.
  • Pension -lower earnings may affect state pension benefit due to lower contribution levels.
  • Unemployment benefits, Statutory Sick pay, council tax or housing benefit may all be affected.
  • Affect on borrowing when applying for a loan/Mortgage.
  In essence these schemes are great and should increase the contributions you make by 31%, which is very attractive.
  Let me know if there is anything else you need clarification on
• I know a lot of people who use Salary sacrifice to put thier bonuses into their pensions. Bonuses tend to be purely financial (no extra benefits to lose, which are normally only based on Basic salary).
  If the things that can effect the level of salary are not important or do not apply, then its a great way of adding to your pension. But as the previous posts mention - if there are others factors which do effect you and put you at a disadvantage then its not so great - but something to help you to decide - your employer will also save the Employers NIC contribution (12.8%) so perhaps you should ask them to add that or part of it to your pension contribution!
• My company is offering its staff this sort of pension payment.
  They will not be putting their savings into the pension fund so will this mean its not worth changing to this system and as it is a final salary scheme can any of the experts tell me if this would reduce our final pensionable monies.
  Thnx
• Generally SS is good idea, even better if the employer contributes the NI savings.
  There are a couple of downsides though which may or may not be of concern to you.
  It's a one way deal, once it's sacrificed it's gone for good, you can't change your mind and get it back in your pay packet.
  Also it can affect your borrowing ability because your salary is now lower than it was.
• Nothing to do with your employer. Once money is invested into a pension then the only way you can get it out is to retire or if you leave with less than 2 years service
• My company has just 'offered' SS but I am a cynic at heart and would no sooner trust my employer as jump into a bonfire.:rolleyes:
  The reason I am concerned is the following:
  1. The details of the scheme were sent out the end of the week before Christmas.
  2. The deadline for opting out is 31st Jan.
  3. The form for Opting Out (which has to be sent by snail mail) is buried somewhere on the companies internal website (intranet).
  4. You have to opt out on a yearly basis.
  This all smacks of 'burying bad news', something my esteemed employer is very good at.
  It's trumpeting the fact the Unions have agreed the deal (that counts for nought in my book based on recent historical decisions/recommendations).
  No extra money is being put into the scheme nor benefits enhanced etc so it's a purely MS exercise and from what I understand very much in the employers pockets rather than employee's.
  I am also concerned that it would appear to turn the scheme into a 'non-contributory' one and I have been told this is much easier to close than a 'contributory' one.
  Now I realise how paranoid this post appears but it is totally born of past experience so any facts would be welcome.
• Can a bonus, paid annually, be part of Salary Sacrifice. i.e. I'm expecting about Ј3.5k - Ј5k bonus to be paid mid-year. Previous years it's been a nice-to-have extra as I haven't really been in need of the lump sum, so it's been taxable income at 40%. If I ask my employer to put it into my pension I assume it will be free from Income Tax & NI.
• Hmm my employer claims it has a 'salary sacrifice' scheme, but it doesn't sound like these schemes. Basically I work for a private educational establishment and the board of governers have decreed that the employer should only contribute 5% to ANY pension.
  I have the option of joining the Teachers Scheme, where employer contributions should be 14.1%, but as they won't pay more than 5% then that means I would have to make up THEIR portion of the contributions and take a 'salary sacrifice' of 9.1%. this is in addition to MY contribution which is set at 6.1%
  Essentially this means my salary is reduced by 9.1%, this reduced figure is what's used to work out my final salary benefits, and also for any banks if I want to get a mortgage etc...
  I earn 30K, I am a basic rate tax payer.. so I can't see any tax benefits and it doens't seem to fit in with the 'salary sacrifice' schemes mentioned above....
  Anyone ever heard of this and is it allowed??
  Cheers
• Thought I'd post this in this sticky thread as it'll be useful for anyone not just fimonkey who I found it for.
  https://www.adviserzone.com/calculato...ysacrifice.php
• Hi, I ran the calculator. What minimum contribution do I need to pay enough NI for the state pension contribution?
  Thanks.