Saving for retirement is a sensible and sound thing to do, regardless of age, time of life or any other excuse we can use to ‘put it off’. Pensions are one way of saving and since 2012, the Government has made it a mandatory way, with increased contribution costs over the last few years for good measure.
The total minimum contribution increased in April 2018 to 5% (2% employer, 3% employee). It is set to rise again in April to 8% (3% employer and 5% employee). Such an increase, at the time when the national living wage will also increase by 4.9%, gives added cost pressure to employers who already provide competitive remuneration packages.
Most businesses strive to save money, increase efficiencies and ‘do the right thing’ by their employees’, however, while pension salary sacrifice can be a welcome relief to counterbalance the rise in pension contributions, it remains a relatively unknown entity to some employers.
Pension salary sacrifice
Pension salary sacrifice is an established arrangement, as welcomed by HMRC as payment of PAYE and NIC, yet the benefits are being missed out on.
At its heart it’s, an efficient way of providing pension contributions:
- for employer – as only one contribution to pension scheme and
- for employee – as no need to claim their additional tax relief.
And when all the design, communication and implementation of the pension salary sacrifice arrangement has been done, both employer and employee are saving money through reduced NIC charges – a potential 25.8% saving each week/month.
Potential savings
We have set out below examples of potential savings based on employee annual contributions:
| Employee annual contributions | Indicative employee/employer savings |
| £10,000 | £2,580 |
| £50,000 | £12,900 |
| £100,000 | £25,800 |
This demonstrates that a pension salary sacrifice arrangement is an efficient, effective and rewarding way to provide a pension to your employees.
For more information, please contact Andy Timpson.
