• How does Salary Exchange/Sacrifice differ from Relief At Source?

  The employee’s salary is reduced by the sacrificed amount, tax and NI is then calculated on the post-pension sacrifice salary. Therefore, unlike a relief at source scheme, there is no 25% pension top-up from the Government.Popular

• Are there any disadvantages to applying a Salary Exchange/Sacrifice pension scheme?

  As the employee's gross pay is lowered by way of the sacrificed amount, their post pension salary will be lower. This could impact the following: Any benefits provided by the employer (such as life cover). Lower statutory payments, or non-eligibility to statutory payments such as maternity pay, sick pay, redundancy pay and shared parental pay. Some employees will be unable to join the new scheme as the sacrifice takes them below the minimum wage. Some mortgage/loan providers will onlySome readers

• Can employers use any Salary Exchange/Sacrifice Pension Scheme?

  No, the pension scheme must be a “Qualifying Scheme” as outlined by The Pensions Regulator. To be a qualifying scheme, it must meet the minimum “qualifying standards”. These standards differ depending on whether the scheme is a defined-contribution or defined-benefit scheme but the pension provider will advise if the scheme can be used for auto enrolment. If they are already using a pension scheme for their Auto Enrolment, this will already be a qualifying scheme. Collegia can be used as aSome readers

• Is Salary Exchange/Sacrifice good for low earners?

  A company should consider carefully the impact of a salary sacrifice scheme if it has a majority of low earners. If employees are currently on a relief at source scheme, they will be able to claim back 25% of their contribution from the Government. However, many low earners will not be eligible for a salary sacrifice scheme as the post-sacrifice salary cannot be lower than the National Minimum Wage, currently at £11.44 for those over 21. The employer has no obligation to keep lower paid employeeSome readers

• What are the advantages of a Salary Exchange/Sacrifice pension scheme?

  The pension contributions are not subject to income tax or National Insurance, making it more tax-efficient for both employer and employee. Some employers add their employer NIC savings to the pension pot, increasing the overall contribution. Your pension pot grows fasterSome readers