Financial advice... Salary pensions sacrifice

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. :face_with_symbols_over_mouth: :sob:


I did it for years with my private medical costs and car allowance. My son does it now through the NHS on a car scheme.

I believe she will save on the amount of tax paid and the employer saves on NI payments.

There is a catch but it’s minor, life insurance is often 4x salary, new salary will be lower so don’t die is best advice

Mortgage multiple will be on salary too if that matters

Get sacked and the payout is based on weekly salary times years worked so that’s a bit lower too

Most employers give you the ni too, ask for that (re read, they are doing that it seems)

If she is over 100k it’s pretty helpful too btw, save losing personal allowance

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.

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Over £100K.
Bob can be kept man in his workroom :wink:

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That makes sense of the email she received from work. They effectively said her pay would increase as a result.

Thanks very much for all the advice everyone, appreciated.

She’s going to agree to it tomorrow.

She’s not on a final salary pension scheme, is she?

It’s a career average over 30 years scheme. Had a separate insurance policy for death benefit and widows pension.

She will be reducing her pension then bob if the average goes down as a result of sacrificing some salary, best get proper advice

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.

I think I get it now, gross salary reduces, nett salary increases. She only had a few years to go so I think any difference is likely marginal in terms of her pension.

There are some calculators available, I’ll try assume of them as well.

Take home pay will increase, can’t see how salary increases unless they are doing that and getting more back in employers NI contributions

Defo worth checking carefully

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.

Usually there is a “notional salary”, which is the basis for the insurances etc.

So let’s say she’s on £40k currently, and they are doing stuff that means her pension of £2k will be salary sacrifice rather than deduction. Her notional salary is £40k, but her actual salary is £38k.

The take home pay increases slightly as the NI deductions are based on £38k now, and the employer will usually share the benefit.

But things like death in service at 5x salary will still be based on the notional salary, so doesn’t change. This also goes for income protection and costs of buying extra holiday and so on.

It’s very standard, but if she has a final salary pension scheme I would be very careful to check that it’s based on the notional salary.

Cheers, that’s the bit we are checking, or rather, double checking.