CliveH Posted March 31, 2008 Share Posted March 31, 2008 There has been a fair bit of posting on pensions on here of late. I hope the following is "allowable" by the moddies as it sets out an opportunity that can benefit a huge number of people. The total tax burden via NIC is to be hiked up substantially next financial year – from April 6th. As such some will find it the Salary Sacrifice option to enhance their pension contribution worth considering. The example appearing in various places is as follows:- An employee on £30,000 a year pays £160 a month to a PPP (£1920 net of BRT at 20% for 2008/09 ) With tax relief the total gross contribution is £2,400 a year Disposable income after tax NIC and pension contribution is £20,468 With Salary sacrifice The employee asks the employer to reduce salary by £2,783 so salary now is £27,217, and the employee stops paying PERSONAL contributions into the Pension After tax and NIC the take home pay is £20,468 as before BUT - the employer now pays the £2,783 of salary plus the employers NIC saving of £356 direct into the members pension. A total of £3,139 going into the pension "pot" Which considering the take home pay is the same but your pension contribution is up by 30.79% - this has GOT to be worth considering! Most employers are as yet unaware themselves of this huge tax break and our experience is that they are more than willing to consider it for their employees and of course for themselves now that the NIC burden is to be substantially increased from April 6th this year. If any one needs more info – happy help – via a PM if you wish R Clive Link to comment Share on other sites More sharing options...
Guest Tracker Posted March 31, 2008 Share Posted March 31, 2008 Assuming you know your stuff Clive, and I have no reason to doubt that you do, I would strongly advise anyone eligible to take advantage of this to build their own pension fund as you simply cannot rely on the state pension alone for comfort in old age - regardless of which party is in charge of the purse strings - specially if you want to retire early. Forgive my cynicism Clive, but I would be amazed that Grasping Gordon has allowed this seeming loophole to occur knowing his hatred of all things that give any money back to the taxpayers? To retire in comfort you need several things to happen. 1 An income that will rise in line with prices and that pay all the bills and still leave a bit for holidays etc. 2 A decent cash sum to take care of capital spends - like new motor homes, cars etc. 3 NO MORTGAGE, and this is a most crucial part of the planning strategy and (in my view) just as important as the other two. Link to comment Share on other sites More sharing options...
Randonneur Posted March 31, 2008 Share Posted March 31, 2008 It is a long time since I was involved in the PAYE ins and outs, but is it not the case that the Pension contribution paid by the employer would be seen as some sort of "Unearned income/allowance" as were the Motoring Allowances. My Husband had a motoring allowance because he had to use his own car for work in the Police Force and a part of the allowance was taxed. Have things changed so radically in the last 10 years. Link to comment Share on other sites More sharing options...
CliveH Posted March 31, 2008 Author Share Posted March 31, 2008 The rules did change a bit in 2005, but salary sacrifice was never considerred a P11D benefit. PIID benefits are benefits such as private health care or a company car that the indivdual gets taxed on (hence the P11D document) but do not normaly get included as "salary" for pension purposes. The P11D document allows you to put a cas value on these benefits and top up your contribution if you wish. PIID allows you to INCREASE your salary so YOU can pay more into pension Salary sacrifice is all about getting your employer to pay more into your pension at no cost to the employer or you. It used to be that it was only worth while for 40% tax payers but one of the spin off (get it!!!) from the latest shenanigans of this wonderful government of ours is to cancel the old 10% tax band and lower the BRT to 20% and on top of that substantially increase the NIC burden as well. So now - as from April 6th onwards - virtually any individual would be daft NOT to ask his employer to allow the employees to fund their pension like this! In fact of the 23 firms we are currently in contact with - every one has said that not only do they want their employees to benefit - but they as the "bosses" want to do it as well! What makes salary sacrifice so useful is that for every £1000 you earn over a certain threshold, you pay 11% NIC and your employer pays 12.8% NIC. So if you say to your employer "I want to earn less but i want you to pay what I sacrifice into my pension pot" , you save the 11% NIC you would have paid and the employer saves the 12.8% they would have paid. The only negative is that sick pay and any life assurance offered by your employer that is based upon a multiple of salary is obviously affected - but that is easily redressed by simply redefining the sum assured to an agreed amount rather than link it to salary. The employee benefit consultants Johnson Fleming have quite a good synopsis @ http://www.johnsonfleming.com/site/78/Smart_Pay.aspx Non of this is rocket science – it works and all employees should consider it. Link to comment Share on other sites More sharing options...
BGD Posted March 31, 2008 Share Posted March 31, 2008 Potentially a good idea, but employees should also check what other elements of their contactual Terms & Conditions of employment are "driven" by Basic Salary. Good examples are overtime and/or shift premium rates. Almost always these are expressed as a percentage of basic salary. Another is future pay rises. Again, these are very often agreed/implemented as a precentage of basic salary. If any elements of your total pay/benefits package is driven by calculations based upone "Basic Salary", you'll be needing to sit down with a calculator to check out the upsides and downsides of converting ome of your notional "Basic Salary" into additional pension contributions. Be aware also that most banks etc, when doing credit checks or reviewing mortgage applications, ask your Employer what your Basic Salary is.....'cos that's the number that generally drives their view of what you can afford (overtime and other variable non-guaranteed income doesn't cut much ice). So, like most schemes, this one seems to me to be a possible benefit, but will depend on your personal circumstances. Link to comment Share on other sites More sharing options...
CliveH Posted March 31, 2008 Author Share Posted March 31, 2008 Bruce The value of the "basic salary/pay" as per the Terms & Conditions of employment or Contract of Employment (whichever applies) is never altered via a salary sacrifice. They stay the same. What happens is that the employee writes to the employer requesting the salary sacrifice into their pension. The tax and NIC benefit as outlined before simply follow on from that. If the employee then revokes their wish to sacrifice salary then the original set of circumstances resume. If the salary was actually reduced as opposed to being sacrificed - then the employer would be under no obligation to reinstate as was. The employee is the one that is "in charge" in that they have to request the sacrifice. Have a look at the above link - it explains this very well. Link to comment Share on other sites More sharing options...
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