I put 18% of my pay into a pension

Samson Dada puts 18 per cent of his salary into his pension using salary sacrifice. He says it would be a mistake to change something which rewards future planning

When Samson Dada gets his payslip every month, he feels a deep sense of satisfaction at seeing how much of his salary he has willingly chosen to give up.

Samson, 33, who lives in Manchester and works as a senior publicist, is choosing to pay 18 per cent of his salary into his workplace pension using salary sacrifice, as he knows that not only is he saving on tax and national insurance, he is also saving towards his future.

And he hopes rumours that Chancellor Rachel Reeves will put limits on the amount that can be saved using the scheme at next week’s Budget are not true.

When someone pays into their pension using the salary sacrifice scheme, their wages are reduced by the same amount, and their employer pays that amount into their pension along with their own contribution and calculates how much tax and National Insurance (NI) they must pay based on the lower salary.

This is what Samson is using in order to reduce the amount of tax he owes and boost his retirement pot.

“I am not a very materialistic person, and I am someone with simple tastes who doesn’t spend a great deal of money particularly,” he told The i Paper.

He added: “I don’t feel I am missing out or depriving myself in any way – it is just my personal choice. I prefer to save the money and invest it for when I’ll need it in the future, rather than spend it now on things I don’t need.

“I invest money if I think I can make a return on it and it is something that will give me more options in later life.”

There is a benefit for employers using the scheme as well, as when staff exchange their salary for pension contributions, their reduced taxable earnings automatically lower the amount they have to pay in employer NI.

According to a report from Scottish Widows, with over half of firms (54 per cent) unable to increase pension contributions for their employees due to financial pressures, the scheme is a cost-effective way to immediately boost employee benefits and manage employer costs.

However, the workplace benefit is under threat of change as Chancellor Rachel Reeves is reportedly looking at a £2,000 cap on how much people can pay into pensions using salary sacrifice without having to pay national insurance.

Above that, employees would pay the full rate of NI on contributions, which is eight per cent on basic rate earnings, and two per cent above higher rate thresholds.

Samson is flummoxed as to why a scheme which encourages long-term planning and saving for retirement would be tinkered with or have its benefits reduced.

Samson began his career working for Transport for London. He has always paid into a pension but makes sure to increase it when he gets pay rises.

He explained: “When I hit 29 or 30, I began paying a lot more into my pension. I am currently paying 18 per cent of my salary into my pension, which is a bit more than the ‘half your age rule’ where it is suggested that people contribute half their age as a percentage of their salary to their pension each year.

“Each time I got more money, I knew I had managed on less, so I thought it made sense to put the extra into my pension.”

Samson believes salary sacrifice is a good system and cannot understand why there is any need to reduce the benefits.

He said: “Salary sacrifice is good for the economy as a whole because it encourages people to take higher-paid jobs, but they know their tax can come down a bit if they pay more into their pension.

He added: “It would be a big mistake to get rid of salary sacrifice because in the long term, it would lead to more people being reliant on the state. We should be encouraging a responsible saving and investment culture.”

The Association of British Insurers (ABI), a UK trade association representing insurance and pension savings firms, has found that two in five (38 per cent) Brits will save less into their pension if the salary sacrifice scheme is capped in the Chancellor’s upcoming Budget.

The ABI, which conducted the poll with Opinium Research, is warning the government that this would result in millions of employees facing a poorer retirement.

Beyond the risk to savers, lower pension contributions mean less money invested to drive UK economic growth, given that pension firms are among the UK’s largest investors.

Yvonne Braun, director of policy, long-term savings, at the ABI, said: “It’s worrying that so many people would cut their pension contributions if the government reduced tax relief in the Budget.

“This isn’t just a problem for lower earners – the government’s own data shows middle and higher earners are most at risk of falling short of an adequate retirement income.

“The Chancellor must resist short-term tax rises that undermine people’s long-term financial security. With so many people already retiring without enough savings, we should be encouraging saving, not making it harder.”