Should I Transfer to a SIPP or a Stakeholder Pension?
Question asked by James Wingham
I’m worried that sacrificing some of my salary will leave me worse off now and not have much benefit in the long run. Are salary sacrifice schemes worthwhile?
Salary sacrifice can be a very tax-efficient way to pay into your pension, but there are some drawbacks to consider before you sign on the dotted line.
As the name suggests, this type of scheme involves you sacrificing some of your pay which your employer then pays into your pension. They then make contributions into the scheme on your behalf as well.
As your pay is effectively reduced, this means both you and your employer pay lower National Insurance Contributions (NICs). Some, but not all, employers chose to pay the savings they make on their NICs into your pension plan, boosting your retirement pot.
The potential downsides of salary sacrifice are that as your salary will be lower, it could make it harder for you to get the mortgage you want if you’re considering buying a property. That’s because lenders usually work out how big a mortgage they will give you based on a multiple of your salary.
Unlike other workplace pensions, you won’t be able to get a refund of your contributions if you decide to leave your job within two years of joining the scheme, because you aren’t directly paying contributions.