4 myths about workplace salary sacrifice schemes busted by an expert

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Agreeing together with your employer to “hand over” a bit of your wage could not sound like a incredible monetary deal – however staff can probably make their cash go additional through the use of wage sacrifice schemes.

But simply over a fifth (22%) have both by no means heard of them or are confused about how they may assist, in accordance with Scottish Widows.

Such schemes imply that staff voluntarily cut back their entitlement to money pay, in return for a non-cash profit.

Employers could provide wage sacrifice as a part of their pension scheme, to assist staff increase their pots. They might even be accessible within the office to assist staff with cycle-to-work schemes, fitness center memberships or insurance coverage prices.

Susan Hope, a retirement skilled at Scottish Widows says wage sacrifice is “an effective way to save lots of for the long run however is commonly misunderstood, with a fifth of staff confused about what wage alternate is and the way it works.

“This might trigger staff to overlook out on primarily ‘free cash’ – which they may profit from of their take-home pay or sooner or later from elevated pension financial savings.”

To assist shed additional gentle on how they work, Hope has shared a number of tricks to dispel among the myths and misconceptions about wage sacrifice schemes:

1. It means a smaller pay packet

Hope says: “In reality, the primary benefit of wage alternate is that it usually ends in greater take-home pay, as you’ll be paying decrease nationwide insurance coverage contributions (NICs).

“You’ll be able to at all times ask your employer to calculate how wage alternate would have an effect on your take-home pay earlier than becoming a member of.”

2. It’s just for greater earners

Hope says those that are eligible embrace earners who’ve a private allowance of at the very least £12,570 (the quantity of revenue you’ll be able to have earlier than paying tax) and earn above the NICs thresholds.

Hope provides: “There’s plenty of free on-line instruments, calculators and guides that can assist you verify should you’re eligible or not earlier than signing up.”

3. It’s not a method to increase retirement saving

Scottish Widows discovered three-quarters (76%) of individuals don’t realise wage alternate can be utilized to extend pension contributions.

“Whereas it would sound difficult, it’s only a barely completely different method to make pension contributions,” says Hope.

4. It would positively have an effect on future advantages

Hope says that if an worker chooses to decide right into a office wage alternate scheme, then the employer can preserve a “reference wage”.

This ensures funds for advantages comparable to demise in service, vacation pay and any time beyond regulation are honoured and calculated utilizing the reference wage for accuracy.

It’s price checking this with the employer.

One thing else to remember is {that a} decrease wage may have an effect on borrowing purposes, comparable to mortgages, though, once more, examine whether or not any reference wage agreed with the employer could be thought of as a part of the method.