Salary sacrifice

For doctors moving from CT/ST2 to CT/ST3, the following article is essential reading, as using salary sacrifice could boost your take-home income if used judiciously (~£200 per month).

What is salary sacrifice?

A salary sacrifice scheme is when you agree to exchange part of your salary in order to receive extra non-cash benefits from your employer.

Your NHS employer will offer some or all of the following:

  • Childcare vouchers
  • Cycle-to-work incentives
  • Car lease/hire schemes
  • On-site nurseries
  • Car parking
  • Gym memberships
  • Home computers
  • Pre-paid store cards
  • Learning materials

In 2017, the tax rules were changed which meant that tax deductions for salary sacrifice were no longer applicable to most of these categories.

The main benefit to salary sacrifice, however, is that it can be used to lower your basic (and pensionable) pay.

Why would lowering my pensionable pay be helpful?

Remember the thresholds for pension contribution rates?

Annual salary% Contribution
Up to £15,431.995.0%
£15,432.00 to £21,477.995.6%
£21,478.00 to £26,823.997.1%
£26,824.00 to £47,845.999.3%
£47,846.00 to £70,630.9912.5%
£70,631.00 to £111,376.9913.5%
£111,377.00 and over14.5%
NHS Pension contribution rates

Compare this to the medical basic pay (and hence pensionable pay) scales:

GradeBasic/Pensionable Salary
Foundation Year 1£28,243
Foundation Year 2£32,691
CT/ST1-2£38,693
ST3+£49,036
Pay scales for junior doctors, April 2020

By comparing the two tables, you can see that as you progress from CT/ST2 to ST3, your pensionable salary increases from £38,693 to £49,036, and also crosses into the next pension contribution bracket (from 9.3% to 12.5%).

In effect, this will increase your annual pension contributions by around £1,500 annually.

Using salary sacrifice in practice

You could use salary sacrifice to reduce your basic pensionable salary by £1,191 by taking the equivalent value through some of the methods mentioned above.

This would bring your basic pensionable salary down to the lower 9.3% pension bracket, cutting your pension contribution by approximately £1,500 annually.

What are the drawbacks of this method?

The downside to this is you accrue less pension in the long-run, but the effect of this should be less since the NHS pension is a defined benefit pension, and the amount of contributions you pay doesn’t directly affect how much your pension is worth.

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