A fantastic financial opportunity to boost your pension fund – at no extra cost.
Using Salary Exchange, or Salary Sacrifice as it’s also known, as a means for employees to pay their pension contributions is a win-win situation of achieving savings for the company and increasing levels of investment for the employee. We’ve been dealing with such schemes for many years, for hundreds of companies and thousands of employees.
How does it work?
A Salary Exchange occurs when an individual agrees to give up the right to a proportion of their pay through a change in the Terms and Conditions of their employment. In return, their employer provides them with an additional employee benefit.
In giving up an amount of pay, prior to receipt, an individual benefits from a reduction in both their Income Tax and National Insurance Contributions (NIC) deductions, and similarly the employer also sees their NIC fall.
Because a Salary Exchange agreement reduces these payments, it’s important to be aware that it can have an impact on some State Benefits or Credits. For example, Statutory Sick Pay and Statutory Maternity Pay may be reduced while Child Tax Credits may be increased. So if anyone is considering starting a Salary Exchange agreement, they should take into account the impact on such benefits and credits.
What are the advantages?
With the reduction in Income Tax and NICs, it means that an employee benefits from either a greater pension investment for the same personal cost, or a reduced cost for the same pension investment. This cost advantage is increased further if the employer rebates part or all of the NICs which they save.
What else should be considered?
By reducing Gross Pay other employee benefits may be affected, for example, the rate at which overtime is paid or bonuses are calculated. Similarly, it may mean that Death in Service or Income Protection benefits are based on lower earnings than they would otherwise have been. There are solutions to all these issues, however, which we can also assist with.
To find out more about how you and your employees could benefit from Salary Exchange do contact us.