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What is it and how can it benefit my company?<\/h3>\nWhat is it and how can it benefit my company?<\/h3>\nSalary Exchange (also known as Salary Sacrifice and SMART pensions) is an arrangement employers may make available to employees \u2013 the employee agrees to reduce their earnings by an amount equal to their pension contributions. In exchange, the employer then agrees to pay the total pension contributions.<\/p>\n
A Salary Exchange arrangement is an agreement to reduce an employee\u2019s entitlement to cash pay, usually in return for a non-cash benefit.<\/p>\n
As lower gross salaries are being paid to employees, the amount of National Insurance Contributions (NICs) owed by the employer is reduced. Employees also save money too.<\/p>\n
The amount you can save will depend on the number of employees in your workplace pension scheme.<\/p>\n
See the table below for examples. Please note this assumes 5% employee pension contribution on average pensionable earnings of \u00a324,000.<\/p>\n
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This can result in significant savings, which can be re-invested in wider employee benefits or retained by the company.<\/p>\n
Your employees could also save 12% of the amount they exchange, depending on their earnings (2% for higher tax rate payers).<\/p>\n
It is common for an employer to retain an employee\u2019s \u2018Reference Pay\u2019, i.e. their basic annual salary, hourly rate or day rate before any Salary Exchange arrangements. This can be used for all pay related benefits such as:<\/p>\n
Yes, Salary Exchange can be introduced into an existing plan as well as new plans.<\/p>\n
As the pension contribution will be paid by Salary Exchange no income tax is deducted as the salary has been given up.\u00a0<\/span><\/p>\n Higher rate taxpayers effectively get the tax relief immediately and do not have to claim it through their self assessment tax return.<\/p>\n As an employer, you can set up a Salary Exchange arrangement by changing the terms of your employee\u2019s employment contract. Your employee needs to agree to this change.<\/p>\n It is important to be aware that Salary Exchange may not be\u00a0suitable for all of your employees. For example:<\/p>\nHow do I set it up?<\/h3>\n
Important things to consider<\/h3>\n
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