Miriam is being told her pensions contributions (company scheme via Scottish widows) are being put into a salary sacrifice scheme that allows NI contributions to be paid at a different stage in the tax timeline. Nett effect is her salary increases with zero downside other than a PAYE tax code change if she is in the higher or advance tax group. She isn’t, she pays basic level.
Anyone done similar, is there s sting in the tail we are missing?
Saves the employer money as they do not have to pay employers NI on the contributions. Simples.
As both employer and employee I’ve done it for years to max out contributions and minimise the cost of doing so.
Had Brexit not stuffed everything I’d be living in a shepherds hut in the Duoro having taken all my pension monies with me and then returning a year later with it ALL tax free.
Best laid plans and all that.
Miriam will already be receiving tax relief on her pension contributions. Salary sacrifice means that her taxable income is reduced by the amount of her contributions.
To use an example if your salary is £55K and you salary sacrifice the max of £40K you only pay minimal tax /NI on £15K at the appropriate rates, as if that were your total income, even though it is still £55K. Works well as long as you can live on £15K gross and save the pension pot for retirement. As always it is other factors that control your decisions.
Yea I think so. Her company are adamant her salary will actually increase as a result, not decrease and her pension won’t be affected. They are selling it that way, no negatives for her pension, a salary increase for her and I assume they benefit financially as well.
The clever bit is sacrificing £40k of salary to pension for a couple of years and then taking it out tax free after age 55 that way you get the benefit of the uplift from government and get to access it tax free, as Mike said you need to be able to live on your lower or partners income but it’s a much underused option that is totally legit
We are only talking an amount each year equal to her NI contributions. Yea you are right, take home goes up slightly but salary goes down. The bonus is her pension contributions increase, that’s the big gain here. As you said earlier, the death benefit goes down a bit, but that’s an insurance policy I don’t want to call in.