Here’s an example: an employer with 100 staff, all making a 5% employee contribution to pension on a £25,000 basic salary could save over £18,800 per year, and boost employees pay packets by over £16,500 per year.
*based on 2022/23 tax year, 15.05% employer NIC and 13.25% employee NIC including Health and Social Care uplift
About salary exchange
What is salary exchange?
Put simply, salary exchange (also commonly known as salary sacrifice) is a smarter and more tax-efficient way for employers to operate their workplace pension scheme!
Rather than make personal pension contributions in the conventional manner, under a salary exchange arrangement an employee agrees to exchange part of their salary (equal to their personal pension contribution) in return for additional employer pension contribution to the same value. This represents a change to their Terms and Conditions of employment.
Unlike salary payments to employees, employer pension contributions attract no income tax or NIC’s (National Insurance Contributions). Therefore, by changing the method in which personal pension contributions are made, tax savings are generated by both the employer and employees. Salary exchange can also be used to purchase some flexible and voluntary benefits.
What are the advantages?
Pension salary exchange enables employees to tailor their salary package in a way that generates tax savings for both the employer and employees.
- Reduces the amount of NICs that employees and the employer pay
- Makes saving into a pension more affordable for employees, even allowing them to choose to save more if they wish to, improving their retirement outcomes
- Allows employees to effectively obtain higher rate tax relief at source, no longer needing to complete self-assessments to reclaim pension tax relief
- Allows employers to invest the tax savings back into the business, share savings with employees through higher pension contributions, or fund other employee benefit programmes
At a time when cost of living pressures are genuinely challenging, salary exchange can be a really effective way of helping your employees pay go further, and of generating savings for your business.
How we can help your company
Broadstone can design a Salary Exchange scheme for your Workplace Pension that is compliant and manages the technical and legal requirements so that you and your employees can benefit together.
We are experienced in helping employers optimise the employee benefits they offer to their staff, and in maximising employee engagement.