Salary Sacrifice

*for a basic rate tax payer

Pension Funds, when boosted by the additional contributions available through Salary Sacrifice, can make a real difference to an individual’s retirement income

Salary Sacrifice is a procedure recognised by HM Revenue and Customs (here at Creative Benefit Solutions we refer to it as Salary Exchange) and it allows National Insurance Contribution (NIC) savings to be made by both the employer and the employee. When these savings, together with the employee’s tax relief, are directed into the employee’s pension plan they can make a significant increase in the amount invested for retirement.

Salary Sacrifice is the ideal tool for employees to use to ensure they put as much money as possible into a Defined Contribution pension plan.

Employees using Salary Sacrifice agree with their employer to reduce their salary by the gross amount they wish to put into the pension plan. The employer then contributes an amount equivalent to the amount “exchanged” directly into the employee’s pension plan on their behalf. With such an amount deducted from salary, before tax and national insurance have been calculated, the retirement investment is maximised to the full.

In addition to regular Salary Sacrifice payments, Bonus Exchange can be used with bonus payments to further boost employee’s pension funds.

Whilst the impact on an individual’s pension funds through using Salary Sacrifice is impressive, there may be other benefits or entitlements that could be affected through reducing earnings in this way. It is therefore essential that anyone wishing to take advantage of Salary Sacrifice 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 Sacrifice can often be seen as a stumbling block to its use. At Creative Benefit Solutions, our consultants have been working with Salary Sacrifice for almost 20 years.

While putting in place Salary Sacrifice for pension contributions may sound daunting, we help set up the administrative process from start to finish for the employer making sure that relevant and correct documentation is produced and signed and that the arrangements are properly established and maintained.

Creative Benefit Solutions made it quick and simple for us to introduce a Group Personal Pension Plan to our business. Their knowledge and advice helped us navigate the minefield of information on pensions to give us a scheme which fitted with our requirements and budget’.