Salary Exchange

Saving for retirement through a company Defined Contribution pension plan is the most tax efficient way for an individual to build their retirement investments in order for them to enjoy the lifestyle they want once they stop working. Salary Exchange makes it even better!

Salary Exchange is a procedure fully recognised by HM Revenue & Customs (who refer to it as Salary Sacrifice) and when offering investment advice to an individual we would more often than not suggest that they consider it where possible, or prudent, to do so. To take advantage of this fantastic opportunity all you need to do is to make your payment into the pension fund each month from your gross salary, effectively reducing your salary by the amount being saved – rather than the more normal method of making the payment from your net salary.

In simple terms using this procedure to boost your pension fund you get increased benefit because:

• You pay less personal tax and less personal national insurance (NI)
• Your employer saves on their national insurance contributions.

These savings, both yours and your employers, can be paid into your pension pot rather than to the government.

Let’s compare the pension funds of two people, both basic rate taxpayers both wanting to contribute £100 per month in to their pension pot, after tax and national insurance, one, Harry, contributing the traditional way, the other, Sally, using Salary Exchange.

As you can see contributing by the Salary Exchange method Sally puts an extra £38.48 into her savings pot – that represents an extra 30.8%. That will make a considerable difference to her lifestyle at retirement.

It is essential that anyone wishing to take advantage of Salary Exchange should obtain comprehensive retirement planning and investment advice, and fully understand the consequences of entering into such an arrangement before doing so. The administration and communication of Salary Exchange can often be seen as a stumbling block to its use. At Creative Benefit Solutions, our consultants have been working with Salary Exchange for almost 20 years and can help you through the complete process.

Creative Benefit Solutions improved the quality and efficiency of the scheme management and provided the trustees with wider investment options coupled with a reduction in cost.

• Flexibility and use of Salary Exchange Case Study
• More Case Studies