Pension Tax Relief - Salary Sacrifice vs Relief at source

[jakinvegas]

Pension Tax Relief Salary Sacrifice vs Relief at source

I'm trying to understand what is more beneficial of the two.
I think the answer is it's better to use SS where available, but wonder if people have more insight as to why.

Salary Sacrifice

+ Money: Gain additional ER NIC deposited in Pension from employer
+ Money: lowers EE NIC as gross salary is lower
+ time: Full contribution in your fund quickly
- money: Net salary reduces: less disposable in the short term

Relief at Source

+ money: Still on full gross salary, so more disposable in short term
- effort: need to do a self assessment to get higher rate tax back
- time: need to wait for RAS 20%
- time: don't get higher rate tax back immediately, so less time in market from an investment perspective

Is there anything else to consider when weighing up which is better to use?

Moderator Message:
Moved to the "Pensions -- Practical Problems" board, as more appropriate. -- MDW1954

[pje16]

My employer also contributes half of what they save on E'Er NI into our "pots"
and being on SS it all happens automatically
I have been on it for years

[PhaseThree]

Salary sacrifice reduces your effective gross pay as seen by the outside world. This can have an effect on state benefits paid to you. (e.g maternity/paternity pay) and things like loan/mortgage applications etc.

You also need to be clear with your employer what salary any bonus or pay rise is based on. My previous employer used a duel salary system, effectively before and after SS with the before value being used for all internal accounting.

[FluffyOverlord]

I have considered similar pros and cons in the past and will be reassessing for next financial year again.

Something I take into consideration...

Relief at source:
+ Larger pay packet = easier access to certain products. Eg mortgages as a multiplier of P60 salary. In my case, I also go for the largest value interest only mortgage. Some companies will only do interest only for high income individuals so I get access to more options when remortgaging.

- Larger pay packet = the bank regularly tells me I qualify for complimentary products such as idiot milking - i mean wealth management.

Having just got a 5 year mortgage, I'm considering Salary Sacrifice for next year to capture the NI (not least because it's due to go up - an example of increasing tax rates resulting in less tax receipts).

There is also the question of at what point in the tax calculation the removal of personal allowance over 100k is applied. Does anyone know if SS vs RAS makes any difference?

Kind regards,
FO.

[pje16]

I still prefer to save the 13.8% NI and from April the additional 1.25%
over 15% will be a good saving

[DelianLeague]

Salary sacrifice has worked very well for me. Its kept my tax very low and also the bonus of a reduced N.I contribution.
In fact it worked so well that I was even mulling over investing in VCT's to remove all the remaining tax paid from my salary as this would not require a very large investment.

I used to have some information with all different incomes and different sacrifice contributions and how it effected peoples N.I but I cant seem to find it.

The only down side that I remember is that it can effect some people who then want to claim certain welfare benefits and also as I think has already been stated, people applying for a mortgage/loan.

Thanks, D.L