Salary sacrifice continues to prove popular, particularly in the public sector, but one tax expert is claiming that some schemes amount to a raid on the Government’s pension pot.
Many public sector workers continue to be on final salary pension schemes which see their pension computation based on earnings in the final 12 months of their career linked to their record of employment.
To access the pension pot they have also made year-on-year contributions during their lifetime in employment.
However, Alastair Kendrick, tax director at chartered accountants MacIntyre Hudson, says, civil servants and other public sector workers are using salary sacrifice to reduce their salary, which consequently reduces the amount of money being paid annually into the Government’s pension pot.
For example, if an employee earning £40,000 opts to salary sacrifice £5,000 their salary reduces to £35,000. If that employee pays 6% of their salary into the pension pot the net amount paid is cut as the level of salary reduces.
But, claimed Kendrick: “Civil servants are then withdrawing from salary sacrifice schemes ahead of starting their final 12 months in employment.
“Employees are then still getting the same amount of pension, but the Government has lost money to fund it.
"Civil servants are raiding the Government’s pension fund which the public at large will have to pay for.
“The Government pension pot is under-funded and the gap is increasing because of the use of salary sacrifice schemes.”