Under the Green Car Scheme the Council allows you to lease a brand new car under a salary sacrifice arrangement.
Under a salary sacrifice arrangement your monthly gross salary will be reduced, resulting in a saving in tax, National Insurance and pension contributions.
This factsheet explains how this arrangement will affect your pension and gives details of how you could pay additional contributions to cover the reduction in your pension.
If you join the Green Car Scheme you will pay less pension contributions as the contribution you will pay will be based on the pay you receive reduced by the sacrificed amount – Therefore contributions will only be deducted from your pay after the sacrificed amount is deducted.
You will be paying less pension contributions while you are in the salary sacrifice arrangement. It is important to note that there will be a lasting reduction to the pension benefits that you will receive.
Since April 2014 the Local Government Pension Scheme (LGPS) is a Career Average Revalued Earnings scheme (CARE). The CARE scheme uses your pensionable pay at the end of each financial year to calculate your pension benefits for that year, the sacrificed amount will not be counted in that calculation. Therefore, for the duration of a car salary sacrifice contract your pension benefits for that term will be less than they would have been had you not been in such an arrangement.
|Actual pensionable pay
|Pay used to calculate pension benefits
What pension benefits would be without sacrifice:
£18,000 x 1/49th = £367.35
What pension benefits would be with sacrifice:
£15,000 x 1/49th = £306.12
Under this example your pension would be £61.23 a year lower by being in the salary sacrifice arrangement.
The pension accrued is then credited to your record and will not change even after the salary sacrifice period has ended. Unlike a final salary scheme where as long as the salary sacrifice period ends at least 12 months before retirement / leaving, the final pensionable pay figure used to calculate pension benefits will be unaffected. The CARE scheme calculates pension benefits each year and this will make a lasting reduction to your pension benefits for the period that you were in the salary sacrifice arrangement.
Yes, the car salary sacrifice scheme will also affect death benefits payable including the death in service grant, as the pay used to calculate the benefits would also be the after sacrificed amount is deducted.
What about benefits accrued before 1st April 2014 in the Final Salary Scheme?
These benefits would be calculated based on pay before the sacrificed pensionable pay is deducted and would not be less due to the Green Car Scheme.
Can I pay additional pension contributions to cover the lost pension?
Yes, you are able to pay towards Additional Pension Contributions (APC) to cover your lost pension. You will need to find out how much pensionable pay you have lost during your period in the salary sacrifice arrangement. Your Employer would be able to provide you with this information.
You will then be able to access the online APC Modeller to calculate the cost of buying back your lost pension:
In order to buy back your lost pension, you must print the Application Form from the online Modeller and return a copy to your Employer and the Pension Fund. You will have the option to buy back your lost pension as a one-off lump sum payment or monthly over a minimum period of 12 months. However, if you wish to pay monthly, you will have to complete a declaration to certify that you are in ‘reasonably good health’.
Where can you find more Information?
This factsheet gives general guidance only, if you need further information, please contact the City & County of Swansea Pension Fund:
Tel: 01792 636655
The Pension Fund is unable to provide any financial advice.
After reading this factsheet, you may want to seek independent financial advice to make an informed decision.
These bodies may be able to help you:
Money Advice Service: https://www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser