[Closed] PensionTrackWorld - Salary Sacrifice

Will your employer top up the employers NI that they save? That is a big benefit of doing this

Not that I can think of. Currently I pay in 15% via salary sacrifice and thinking about increasing in.

Small top up from employer, but mainly looking to get the tax benefit

There are two benefits to salary sacrifice:

1. Your employer saves Employer's NI contribution which they *might* give you
2. You don't have to tell HMRC about your pension contribution if you're a higher rate tax payer and want the extra 20% tax back

Small top up from employer, but mainly looking to get the tax benefit

Tax advantage is the same only if you pay into a SIPP from your net salary, you need to tell HMRC in order to get the higher tax back (if you're a higher rate tax payer).

I'm in the slightly odd position of no longer paying anything into a pension and HMRC keep adding the higher rate tax benefit to my tax code and I keep having to tell them to take it off!

The counter view is - do you want to lock up the money until you're 58+? And how big is your pension now? If it's already healthy, you might prefer to put it somewhere where you can access it sooner.

Depending on how (and when) the system was set up you may save the NI as well as teh tax, although at that point NI is 2%. There may be a restriction that you can only make a change once per year so if you needed to change during the year it will be "lost". Personally I just make additional contributions and claim it all back in my tax return.

Employer's NI is 13.8% IIRC, so worth it if they give you all (or part of) it back....

footflaps
Full Member

Employer’s NI is 13.8% IIRC, so worth it if they give you all (or part of) it back….

This for me is the main benefit, my employer adds the 13.8% saving to my pension payment. It is money they save so it is worth asking for all of it.

Sweepingly general rule of thumb for pension savings is you take your age, halve it, and that's the percentage of your gross salary that you want to be putting aside into a pension. That includes any employer contribution.

So, if you already have that much going into your pension, lovely, adding more is never a bad idea but you could think about spending it on C&H instead. If you're not, and hardly anyone is really saving enough into their pension, then salary sacrifice is a no-brainer.

To answer the original question - no, there isn't.

Find if you’re getting the ‘employer’ NI Refund being given to you as part of the sacrifice.

Check the track record of your works pension returns over the last few years and compare with the pension market average.

Check all the charges etc that are being applied to your works pension and compare them with the market average.

Do the maths, the employer ni is a massive plus but if you’re not getting it and if your fund returns are constantly less than average and your charges are higher than average it may be better to have a direct sipp and claim tax back via tax return.

Also after the equitable life fiasco I decided that all eggs in the same basket was not a plan I was going to adhere to.

Thanks all.

To answer some of the questions / points raised:
Employer gives half the NI saving to me (this is actually news to me, either they've increased this or had a bad typo on intranet)
Not worried about tying up money, 58 not that far off sadly, and I have other savings currently doing nowt
Am well aware of Equitable (have an uncle that lost money) - can remember their smug adverts!
This will be my third pension so not too concerned about eggs and baskets, will be checking fund performance and charges though

If your works pension is just more or less a normal DC pension with someone like Aviva, you can transfer chunks OUT of it into a cheaper SIPP.

So you get all the salary sacrifice benefits (basically if you sacrifice 100 gross a month, then that plus any employer matching and top-up from employer NI goes directly into the works pension as an employer only contribution - you don't have to tell the IR because there is no tax to claim back - you WOULD have paid 20% or even 40% + employee NI on it, had you got it, but you never did get it, so no tax or NI was due on it).

That's what I did - chose a very low volatility fund in the works pension - poss. even a deposit fund where I would have lost a tiny amount - and every so often, transferred most of what I had in there over to my SIPP which has lower charges.

1. Your employer saves Employer’s NI contribution which they *might* give you
2. You don’t have to tell HMRC about your pension contribution if you’re a higher rate tax payer and want the extra 20% tax back

you also save employee NICs, which unlike income tax isn't claimable back if you later pay into a pension yourself (I think)

there can be other benefits to keeping your salary below a certain level - for example to enable you to claim child benefits, or 30 hours free childcare (both of which are means tested on take home pay, not on how big your pension is). I'm not sure if these are managable if you later pay into a pension yourself (30 hours free is, but requires you to argue with the folks who run the scheme)

you also save employee NICs

I'm sure when this came in at work someone pointed out the saving was of the order of £5/year.

A few of us hairy lefties refused to sign up as as far as we could tell it was just netting the company more money and as the company was registered in the Bahamas we felt it could do with paying a few £ more in tax anyway (they weren't going to pass it on).

I’m sure when this came in at work someone pointed out the saving was of the order of £5/year.

its likely to be either 2% or 12%, so not to be sniffed at

If you've got kids but are above 60k or are above the 100k mark then using salary sacrifice to reduce your salary is quite tax efficient (bring your salary down below 60k and you get child benefit, bring it down below 100k and you don't lose your personal allowance).

Obviously not applicable to everyone, but worth knowing.