Salary sacrifice

[takethatlady]

Hi there,

I am 12 weeks pregnant with DC1 and due in June. All being well I will be returning to work in January 2011 and DH and I are starting to think about childcare/finances.

I work at a uni and they offer a salary sacrifice scheme for their (very good) nursery, which I would like to use 3 days a week. As far as I can make out, this will cost £150 a week and is for 45 weeks a year = £6750 p.a.

My wage will be £31.5k that year, so with the salary sacrifice scheme I will pay the childcare costs and take home just below £25k. I have student loans and a pension.

I'm emailing to ask about this because according to this salary calculator thing online this will mean that I take home just over £1500 per month whereas currently I take home just over £1800 a month, meaning that my childcare will actually only cost me £3600 per year.

Can this be right? It seems like a phenomenal saving and will make a MASSIVE difference to our lives - but I'm worried I'm missing something. Do these figures sound about right to other people who are involved in similar schemes?

Sorry to ask such a blunt question but there's no-one who would know about this in RL who I feel comfortable exposing all my finances to.

Thanks for any advice!

Thanks jareth. I will definitely do that - I'll actually be still working the equivalent of five days a week but compressing my hours/working in hours when my DH is at home etc, so we only need 3 days childcare.

All the documentation I have so far mentions nothing about any limit on the salary sacrifice and looks pretty much the same as the Oxford stuff, but you're right, it's worth checking.

We're renting our house in Cambridge, where we currently live, and renting something there, so it shouldn't make a difference to mortgage apps at the moment. But you're right, it'll affect pension etc etc.

Just wanted to say that there are 2 separate schemes - the salary sacrifice for a workplace nursery, and the salary sacrifice for the voucher scheme.

If your employer offers a workplace nursery scheme, the benefits are much greater as there is no limit to the amount you can sacrifice and you don't pay tax and national insurance on that amount. I do this through my employer - my nursery fees are £900 a month (so I sacrifice just short of £11,000 a year) but I only lose about £600 a month from my salary. Obviously if I was paying the fees directly it'd cost me £11,000 compared to £7000 paying them through the salary sacrifice scheme. Obviously thats a huge saving to me. As others have said, the only potential down side to this is that your new salary (your original salary less the sacrifice) is treated as your salary for other benefits - sick pay, death in service benefit and maternity pay (I opted out when I got pregnant with Number 3 so that my maternity pay was based on my original salary rather than my reduced salary so I had to pay nursery fees directly for the last 6 months of my pregnancy but it was worth it in terms of the extra maternity pay I received).

The other voucher scheme is the government one, which caps the amount you can sacrifice at about £243 a month and this is the one that is changing in the future.

Hope that helps.

Mandy

I should also add that it did make a difference when we applied for a mortgage - I think it was Santander (which is quite a big group - includes Abbey, B&B I think) that would only accept my reduced salary as my income, because that is the salary that will be set out on your P60. As I said, I sacrifice nearly £10k so when we were looking at borrowing 3.5 x our joint salaries (or whatever it is), that meant we were talking about borrowing £40k less - so check all the details before you sign up. We eventually got a mortgage with Nationwide but I had to get a letter from my employer to say my actual salary was X and I had opted to make a salary sacrifice of Y.

In my case, my employer still makes pension contributions based on my original salary, not the reduced amount, so I guess it varies from company to company.

Mandy