Salary Sacrifice

[Movie BEXtra]

I have the opportunity to opt in to a Salary Sacrifice Scheme. I have a choice of what percent of my gross pay to sacrifice between 1-8%. What I am unsure of is does the percentage have to match what I'm paying into my monthly pension.

 

[booyaka]

your question doesn't make sense. What are you currently paying in??

Salary exchange is a way of making pension contributions that could allow both employers and employees to save money.

• An employee agrees to give up part of their salary or bonus in exchange for a pension payment paid by their employer.
• Employers pay lower NICs as a result of paying their employees a reduced salary.
• Employees also pay lower NICs and possibly less income tax.
• Employers are free to use their NIC saving how they wish. Some might use a portion of it to supplement their employees' pension plans.
• Employees can use their savings to boost their pension provision or increase their take home pay.

 

[Movie BEXtra]

Say if I'm paying 5% into my pension a month. Do I pay the same percentage in salary sacrifice?

 

[DJT75]

What non-cash benefit would you receive in exchange for your salary sacrifice?

For example the only time I've done a salary sacrifice it went straight to daughters pre-school so I was able to avoid tax on those costs.

But you don't say what you're planning to sacrifice in exchange for?

 

[SteakAndCake]

We were forced into this at work last month when the company changed pension providers.

I get more money in my pension and about £10 a month more net pay and the company probably saves a metric ****tonne in NI payments.

Personally I dislike it. I find it unethical and akin to tax avoidance schemes. To me it feels like I'm personally taking money from the NHS and that makes me really uncomfortable.

 

[jenam93]

Salary sacrifice does not have to be matched to the pension you are already paying.

The gains from salary sacrifice are massive, especially for higher rate tax payers. If you can afford it, it is a no-brainer, unless like S+C above you disagree with the principal.

I'd do it if I could afford to.

 

[imightbewrong]

Any time you put money in a pension you get the tax back which goes into the pension too - doesn't have to be via salary sacrifice. The draw of these schemes is usually some kind of company matching of the funds. So you get £80 take home pay, or that plus tax back plus company matching = £200 in the pension. Downside is you can't get at it for several decades

But yes salary sacrifice can be for anything - pension, child care, holiday, tm Lewin vouchers, etc etc Each have either, both or neither tax and NI benefits.

 

[Elrond]

Say if I'm paying 5% into my pension a month. Do I pay the same percentage in salary sacrifice?

My understanding is that the percentage you sacrifice is the percentage that gets paid into your pension.

There are other benefits that salary sacrifice can be used for, but unless you have them, there is no point sacrificing more than what is going in your pension. Otherwise, where is that extra going to go.

I don't know if you can do part and part as I have only work in companies where you are in the scheme or not. However, I can't see the point in doing say 2% sacrifice and 2% normal as you would be losing out.

We were forced into this at work last month when the company changed pension providers.

I get more money in my pension and about £10 a month more net pay and the company probably saves a metric ****tonne in NI payments.

Personally I dislike it. I find it unethical and akin to tax avoidance schemes. To me it feels like I'm personally taking money from the NHS and that makes me really uncomfortable.

I thought companies had to allow you to opt-out of salary sacrifice, I know I have always been able to. Is that not the case?

 

[3T3L1]

We do it at work.

I have no moral problem with it but the most annoying thing is that really makes a difference on mortgage quotations.

They take your basic salary into account (ie after sacrifice) then deduct the pension payments from your net pay...even though your basic salary is post-pension.

It's meant that I can only qualify for a mortgage which is less than I'm paying in rent.

As it's done through payroll, you can only make changes once per year, so it's either pay less into my pension for a year or be less than truthful with the bank.

To be fair I could also look at more than just a couple of places for a mortgage quote but I've certainly been told the same thing at a couple of High St lenders.

 

[johntheexpat]

If nobody funds the NHS, education, defence, The Police, etc etc because everybody is avoiding tax, what happens then?

 

[mitchec1]

If nobody funds the NHS, education, defence, The Police, etc etc because everybody is avoiding tax, what happens then?

Just because your in a salary sacrifice scheme doesn't mean your not paying tax.

I'm sure HMRC have bigger problems than someone whose PAYE & in salary sacrifice scheme

 

[SteakAndCake]

Just because your in a salary sacrifice scheme doesn't mean your not paying tax.

I'm sure HMRC have bigger problems than someone whose PAYE & in salary sacrifice scheme

You pay less tax and NI because you are taxed on your salary minus the pension contribution. Multiple that by everybody participating in such a scheme and I imagine it's a hefty chunk of cash.

Yes, HMRC really should have bigger fish to fry but they are so underfunded, they cannot afford the cost and time to investigate a large corporation for tax avoidance.

 

[imightbewrong]

How has this moved on to HMRC problems/investigations? HMRC make pension contributions 'before tax' as part of the scheme to encourage people to save for the future.

Also, *they are taxable income on withdrawl*. So you don't pay tax on your pension deposit today, but the 70yo over the road is paying income tax on his monthly drawdown (after allowances etc).

 

[mitchec1]

You pay less tax and NI because you are taxed on your salary minus the pension contribution. Multiple that by everybody participating in such a scheme and I imagine it's a hefty chunk of cash.

Yes, HMRC really should have bigger fish to fry but they are so underfunded, they cannot afford the cost and time to investigate a large corporation for tax avoidance.

Then the government should close this option down if it becomes unaffordable for them.

 

[3T3L1]

Yes, HMRC really should have bigger fish to fry but they are so underfunded, they cannot afford the cost and time to investigate a large corporation for tax avoidance.

Then they should make it illegal. Easy enough to stop.

I'm happier with my money in my pocket so I can spend it (thus paying VAT) on what I want.

 

[booyaka]

We do it at work.

I have no moral problem with it but the most annoying thing is that really makes a difference on mortgage quotations.

They take your basic salary into account (ie after sacrifice) then deduct the pension payments from your net pay...even though your basic salary is post-pension.

It's meant that I can only qualify for a mortgage which is less than I'm paying in rent.

As it's done through payroll, you can only make changes once per year, so it's either pay less into my pension for a year or be less than truthful with the bank.

To be fair I could also look at more than just a couple of places for a mortgage quote but I've certainly been told the same thing at a couple of High St lenders.

If it's an issue - get your employer to give you a letter stating that your a member of a salary sacrifice scheme and that should be all that is required. I've done it for clients before and it's acceptable to mortgage providers.

If nobody funds the NHS, education, defence, The Police, etc etc because everybody is avoiding tax, what happens then?

Salary sacrifice isn't tax avoidance

Just because your in a salary sacrifice scheme doesn't mean your not paying tax.

I'm sure HMRC have bigger problems than someone whose PAYE & in salary sacrifice scheme

Correct - every pension scheme I've ever setup in the last 5 years, including Auto enrollment I have advised that the employer makes it a salary sacrifice scheme. Most employers then generally pay back 50%/100% of the NI savings they make to the employees pension scheme thus it's a win for the employee as they get a larger pension contribution for nil cost

 

[3T3L1]

If it's an issue - get your employer to give you a letter stating that your a member of a salary sacrifice scheme and that should be all that is required. I've done it for clients before and it's acceptable to mortgage providers.

Thanks - I'm pretty sure I'm not the only person with this problem (nor have I tried particularly hard to look for alternatives) but good to know there is a sensible way round it...

 

[SteakAndCake]

Thanks - I'm pretty sure I'm not the only person with this problem (nor have I tried particularly hard to look for alternatives) but good to know there is a sensible way round it...

On my payslip, the original salary is still shown and since your net pay is unaffected or if anything goes up, I cannot see how it would negatively affect a mortgage application.

 

[imightbewrong]

Yep - a payslip should sort that out pdq.

 

[Lancia34]

I have as much as possible on salary sacrifice and being a 40% tax payer which is unfair in it's own right I'm very happy about it.
Have my pension (full 7%), parking at work and childcare vouchers all come out as salary sacrifice. If it saves me some money it's a no brainer

 

[johntheexpat]

Salary sacrifice isn't tax avoidance

I have as much as possible on salary sacrifice and being a 40% tax payer which is unfair in it's own right I'm very happy about it.

No not avoidance. But it skirts around tax and NI contributions (which are tax, lets face it). That's the whole point of the schemes.

But, if nobody wants to pay tax in the UK that's fine by me. Enjoy the crappy Health service, Education system, lack of police, shoddy roads, and all the rest.

 

[imightbewrong]

No not avoidance. But it skirts around tax and NI contributions (which are tax, lets face it). That's the whole point of the schemes.

But, if nobody wants to pay tax in the UK that's fine by me. Enjoy the crappy Health service, Education system, lack of police, shoddy roads, and all the rest.

But you pay tax when you... nevermind

 

[SteakAndCake]

No not avoidance. But it skirts around tax and NI contributions (which are tax, lets face it). That's the whole point of the schemes.

But, if nobody wants to pay tax in the UK that's fine by me. Enjoy the crappy Health service, Education system, lack of police, shoddy roads, and all the rest.

Yes, it's not illegal but in my mind, it's in the same ethical category as the schemes used by Gary Barlow and Jimmy Carr. It uses the word of the law to evade the spirit of the law.

At my company, if we did not take the scheme we would lose all employer contributions which is a massive amount of money to lose. I could not afford that and feel terrible for participating in the new scheme.

 

[imightbewrong]

I have as much as possible on salary sacrifice and being a 40% tax payer which is unfair in it's own right I'm very happy about it.

If you think that's unfair, you wait until you start losing your tax-free allowance.

 

[IronGiant]

Yes, it's not illegal but in my mind, it's in the same ethical category as the schemes used by Gary Barlow and Jimmy Carr. It uses the word of the law to evade the spirit of the law.

The Government wants to encourage people to invest more in their pensions so that they are less of a burden on the State in later life, so if people are doing that then no complaints here. Holidays and such though, that's another matter altogether.