Salary sacrifice for employee pension contributions
Salary sacrifice for employee pension contributions is now seen as the main way for employees to contribute to their pension arrangement resulting in National Insurance contribution savings for both employees and the employer. If you have yet to implement salary sacrifice for employee pension contributions, then we at Quantum Advisory can help.
What is salary sacrifice for employee pension contributions?
Employee pension contributions attract income tax relief but do not attract relief from National Insurance contributions. Salary sacrifice changes the way employees contribute to their pension arrangement so that both the employer and employees obtain National Insurance relief on employee pension contributions. This is achieved by employees giving up that part of their earnings which they would have normally used to pay their employee pension contributions (it is this reduction in earnings which triggers the National Insurance savings), with the employer paying the employee pension contributions on their behalf.
Substantial savings for both employers and
employees can be made. Employers save 13.8% per annum on the total pension
contribution paid by employees, while employees save either 8% per annum (if
they earn below the Upper Earnings Limit) or 2% per annum (if they earn above
the Upper Earnings Limit) on the total pension contribution they pay.
There is no ‘one size fits all’ arrangement – different
employers will have varying membership profiles which will impact on how salary
sacrifice is implemented and also, crucially, how it is communicated and
managed. Our offering is flexible and tailored to meet your needs. The process
of introducing and administering a salary sacrifice arrangement is relatively
straightforward, but special care must be taken with employee communication.
We
provide bespoke communications that include personalised ‘before and after’
payslips for employees; the design of the payslips replicate what is actually
provided to employees, so they can see the real benefit to their take-home pay
of salary sacrifice. We find that these, combined with employee presentations,
results in a very high take-up rate, and employees fully appreciate the win-win
situation resulting in savings for both employers and employees.
Further reading
