Have you considered using salary sacrifice for your pension scheme?
It’s not an option under the TPS and STPS, but under a DC scheme the benefits of salary sacrifice can be substantial with savings of up to 25.8% of employee’s contributions (i.e. 13.8% in respect of employer NIC and up to 12% in employee NIC). Those savings can be used to offset employer pension costs and increase staff’s take home pay, and/or some/all can be used to boost retirement savings.
There's no denying that choosing how employees’ pension contributions are paid is complex.
There’s a lot of choice and the benefits and/or savings between the different options can be substantial for both employers and their employees.
For example, the table below shows five different ways to approach the same employee pension contribution, each with a very different outcome.
If this was your own pension contribution, which option would you choose?
Employee contribution
|
Method |
Amount invested in pension pot |
Employer NI savings2 |
Employee NI savings3 (gross pay increase) |
£1,000 |
£1,000 deducted from gross pay, or £800 deducted from net pay + £200 basic tax relief |
£1,000 |
£0 |
£0 |
£1,000 |
£1,000 salary sacrifice. Employer and employee keep their NI savings |
£1,000 |
£138 |
£120 |
£1,000 |
£1,000 salary sacrifice. Employer keeps their NI savings. Employee reinvests their NI savings in their pension |
£1,120 |
£138 |
£0 |
£1,000 |
£1,000 salary sacrifice. Employer reinvests their NI savings in the pension. Employee keeps their NI savings |
£1,138 |
£0 |
£120 |
£1,000 |
£1,000 salary sacrifice. Employer and employee reinvest their NI savings in the pension |
£1,258 |
£0 |
£0 |
Assumptions:
Employee is a basic rate taxpayer entitled to 20% tax relief.
All earnings subject to NI rates of 13.8% employer and 12% employee