Salary Sacrifice Pension Schemes
Significant savings can be generated by converting existing pension schemes to salary sacrifice pension schemes, or by setting up a new pension scheme on a salary sacrifice basis. Any scheme where employees make (or intend to make) contributions can be adapted.
The mechanism, which is often overlooked, is straightforward. Currently, many employers deduct employees' pension contributions from net pay, then pass on the contributions to the pension providers, together with any employer contribution. Under a salary sacrifice pension scheme, the employee simply agrees to a reduced salary (a gross pay reduction), in return for an enhanced employer pension contribution. The deduction from net pay ceases.
The most compelling reason for doing this is that the salary sacrifice results in National Insurance savings, both for the employer and the employee, on the value of the employee contribution. These savings can, if so desired, be used to significantly enhance pension contributions. Another benefit is that tax relief is received immediately by employees (no need for higher-rate taxpayers to claim through their tax returns - which many forget to do anyway!) and again this can be used to enhance contributions.
For more information, download our guide to Salary Sacrifice Pension Schemes, or contact us.