Salary sacrifice pensions..worth it?
Discussion
This is complex but I'm in need of advice for my brother who has been offered one of these. The deal is he sacrifices a £1000 of his 25k salary, which goes into his pension pot. The company will match this meaning £2000 goes into the pot in total. The alternative is that he keeps his salary and puts in anything from 2 to 4% of his salary, again with the company matching it. They are pushing the salary sacrifice scheme by saying it will mean he will pay less tax and NI by doing this, meaning his net income will be slightly higher per annum (about £120), than with the non salary sacrifice option. Does anyone have any advice? What's in it for the company? Will it affect other things like mortgages, redundancy payouts etc or anything else dependent or judged on salary?
He has also to choose the kind of fund, property based, gilt based, FTSE based, FTSE emerging Market based, ethical based etc. Obviously some are more risky than others, but which is safest yet likely to yield a worthwhile sum? The policy is with Standard Life. He is thirty and will work until 65. He works for Howdens joinery making kitchens.
He has also to choose the kind of fund, property based, gilt based, FTSE based, FTSE emerging Market based, ethical based etc. Obviously some are more risky than others, but which is safest yet likely to yield a worthwhile sum? The policy is with Standard Life. He is thirty and will work until 65. He works for Howdens joinery making kitchens.
Lotusevoraboy said:
He has also to choose the kind of fund, property based, gilt based, FTSE based, FTSE emerging Market based, ethical based etc. Obviously some are more risky than others, but which is safest yet likely to yield a worthwhile sum? The policy is with Standard Life. He is thirty and will work until 65. He works for Howdens joinery making kitchens.
If he has a 30 year investment horizon then he can probably afford to take some investment risk, so equity exposure would make sense. Bear in mind that returns could be volatile (and negative) over short investment horizons.For a safer investment choice, he could put together a balanced fund with some exposure to equities, properties, bonds and cash.
Generally, the higher risk, the higher potential return (but the higher volatility).
My company does it and I joined the scheme
Here are some details.
http://www.pensionsadvisoryservice.org.uk/workplac...
Here are some details.
http://www.pensionsadvisoryservice.org.uk/workplac...
I just don't like the idea of taking stuff away from staff - especially when it can have repurcussions.
Certainly, in the earlier days, third parties (such as banks, lenders, potential new employers etc) found them difficult to understand and therefore were prone to discount the full value of a salary package by just looking at headline Gross Salary figures shown on a P60. This could cause problems when "proving" salary levels.
Older sacrifice schemes were also abused by employers. I got caught up in such a scheme linked to the old "tax free profit sharing scheme" - which was totally artificial in nature and essentially a lie being perpetrated by the employer.
Things have moved on since those days and the schemes have matured a bit and are less likely to be abused as they once were - so my objections aren't as strong as they used to be. They have their uses. Indeed, some of my clients are making clever use of such schemes centered on such schemes as "cycle to work" or "childcare vouchers".
Also, outside third parties understand them a lot better so they have less detrimental impact on an employee trying to prove their income than they used to.
Certainly, in the earlier days, third parties (such as banks, lenders, potential new employers etc) found them difficult to understand and therefore were prone to discount the full value of a salary package by just looking at headline Gross Salary figures shown on a P60. This could cause problems when "proving" salary levels.
Older sacrifice schemes were also abused by employers. I got caught up in such a scheme linked to the old "tax free profit sharing scheme" - which was totally artificial in nature and essentially a lie being perpetrated by the employer.
Things have moved on since those days and the schemes have matured a bit and are less likely to be abused as they once were - so my objections aren't as strong as they used to be. They have their uses. Indeed, some of my clients are making clever use of such schemes centered on such schemes as "cycle to work" or "childcare vouchers".
Also, outside third parties understand them a lot better so they have less detrimental impact on an employee trying to prove their income than they used to.
I dont see whats not to like personally - these are all above board and most result in savings for the employee (childcare scheme worth over £600 tax saving per year for example) - the only issue is ensuring employees are properly advised before signing-up which is rarely an issue nowadays.
David
David
I agree
They are more commonplace now and less contentious than some of the earlier versions - such as those linked to profit related pay or supply of computer equipment to staff.
The fact that these earlier renditions of the principle of salary sacrifice were eventually closed down indicates that they were not being operated the way originally intended by government.
They are more commonplace now and less contentious than some of the earlier versions - such as those linked to profit related pay or supply of computer equipment to staff.
The fact that these earlier renditions of the principle of salary sacrifice were eventually closed down indicates that they were not being operated the way originally intended by government.
Eric Mc said:
I just don't like the idea of taking stuff away from staff - especially when it can have repurcussions.
Certainly, in the earlier days, third parties (such as banks, lenders, potential new employers etc) found them difficult to understand and therefore were prone to discount the full value of a salary package by just looking at headline Gross Salary figures shown on a P60. This could cause problems when "proving" salary levels.
Older sacrifice schemes were also abused by employers. I got caught up in such a scheme linked to the old "tax free profit sharing scheme" - which was totally artificial in nature and essentially a lie being perpetrated by the employer.
Things have moved on since those days and the schemes have matured a bit and are less likely to be abused as they once were - so my objections aren't as strong as they used to be. They have their uses. Indeed, some of my clients are making clever use of such schemes centered on such schemes as "cycle to work" or "childcare vouchers".
Also, outside third parties understand them a lot better so they have less detrimental impact on an employee trying to prove their income than they used to.
Ok. Thanks for that.Certainly, in the earlier days, third parties (such as banks, lenders, potential new employers etc) found them difficult to understand and therefore were prone to discount the full value of a salary package by just looking at headline Gross Salary figures shown on a P60. This could cause problems when "proving" salary levels.
Older sacrifice schemes were also abused by employers. I got caught up in such a scheme linked to the old "tax free profit sharing scheme" - which was totally artificial in nature and essentially a lie being perpetrated by the employer.
Things have moved on since those days and the schemes have matured a bit and are less likely to be abused as they once were - so my objections aren't as strong as they used to be. They have their uses. Indeed, some of my clients are making clever use of such schemes centered on such schemes as "cycle to work" or "childcare vouchers".
Also, outside third parties understand them a lot better so they have less detrimental impact on an employee trying to prove their income than they used to.
The scheme I did did not cost me anything extra. It saved me and the comapany NI payments. The company said if I entered the scheme they would contribute half of the savings they made to my pension, I added my own savings. So for doing nothing more than ticking a box on a form, my pension gets an extra boost every month.
I like salary sacrifice arrangements for pension contributions (and various other things). With a £25k salary, it makes the tax relief much more worthwhile - when you include the NI saving the employee is effectively receiving 32% tax relief (i.e. 20% income tax + 12% NI) rather than just 20%. So a £100 contribution costs just £68 net not £80 net.
There might be a few pitfalls to look out for, as mentioned above. For example, will it affect your ability to get a mortgage or a loan? (I thought most mortgage companies tended to look at monthly net income than gross these days, but I could be wrong. Plus, I would have thought you'd have to be really stretching yourself for 4% of salary to make that much of a difference.)
The redundancy point is probably a good one in the current economic climate. In practice, in my experience, companies tend to look through that and treat you as if you hadn't signed up to the salary sacrifice - i.e. you retain the same "notional" basic salary - but I'm sure there are cases where they don't.
Shouldn't make a difference to Child Benefit - pension contributions would be excluded from gross income regardless of whether paid via salary sacrifice or the old-fashioned way.
It's not like the profit-share thing from the mid 90s (I used to have one of those) which was eventually clamped down on. I seem to recall that HMRC has confirmed explicitly they think salary sacrifice for pension contributions is fine and most big companies do it these days.
There might be a few pitfalls to look out for, as mentioned above. For example, will it affect your ability to get a mortgage or a loan? (I thought most mortgage companies tended to look at monthly net income than gross these days, but I could be wrong. Plus, I would have thought you'd have to be really stretching yourself for 4% of salary to make that much of a difference.)
The redundancy point is probably a good one in the current economic climate. In practice, in my experience, companies tend to look through that and treat you as if you hadn't signed up to the salary sacrifice - i.e. you retain the same "notional" basic salary - but I'm sure there are cases where they don't.
Shouldn't make a difference to Child Benefit - pension contributions would be excluded from gross income regardless of whether paid via salary sacrifice or the old-fashioned way.
It's not like the profit-share thing from the mid 90s (I used to have one of those) which was eventually clamped down on. I seem to recall that HMRC has confirmed explicitly they think salary sacrifice for pension contributions is fine and most big companies do it these days.
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