A guide for PwC employees Salary sacrifice and

A guide for PwC employees
Salary sacrifice and pensions
BPEN376/D 11.13
Did you know that salary sacrifice can provide
you with a tax efficient opportunity to increase
pension contributions?
How is salary sacrifice arranged?
What is salary sacrifice?
• Your terms and conditions of employment need to be revised.
• This revised contract must state that you are entitled
A salary sacrifice scheme is an arrangement between
you and your employer where you agree to a reduction in
your salary, and in return you receive a benefit. The benefit
here is a contribution by your employer of an equivalent
amount into your personal pension. This way you can save
on income tax and both you and your employer can save
on national insurance contributions (NIC).
The sacrifice is achieved by varying your terms and conditions
of employment as you are giving up your contractual right
to future cash payments of the amount sacrificed.
Advantages of salary sacrifice
for you
Strict rules apply to salary sacrifice to protect both you and
your employer. The following factors laid down by HM Revenue
& Customs (HMRC) for salary sacrifice need to be met:
to a lower cash payment and separately a benefit (in this
case an enhanced employer pension contribution) as a
result of a sacrifice.
• The agreement between you and your employer must refer
to the benefit being given in exchange for the sacrifice.
• Only your entitlement to future salary can be sacrificed
and this must be done before it is treated as received
for tax purposes.
The information contained in this guide is based on
Friends Life’s understanding of current legislation,
taxation law and HMRC practice for the 2013/14 tax year,
which may change in the future.
• Salary sacrifice can be used to boost your pension savings
The value of a pension is not guaranteed and can go up and
down. You could get back less than you’ve paid in.
• Salary sacrifice is NIC efficient.
• The upper earnings limit (UEL) for tax year 2013/14 is
The value of any tax relief depends on your financial
circumstances. Tax rules may change.
while leaving your net spending income unchanged.
£41,450 a year. If you earn below the UEL, you can save
NIC of 12% of the amount sacrificed. If you earn above
the UEL your NIC savings will be 2%.
• Your earnings that would be taxed can be sacrificed into
pension contributions which are not taxed.
Depending on your circumstances there may be
disadvantages to salary sacrifice and its important you
understand these. We explain these in ‘What you need
to be aware of about salary sacrifice’ later in this guide.
A guide for PwC employees – salary sacrifice and pensions
What you need to be aware
of about salary sacrifice
Salary sacrifice can also affect your entitlement to the State
Second Pension (S2P). The calculation of S2P is a complex
area but, if after the sacrifice:
Like any financial decision salary sacrifice is not suitable for
everyone. You should be aware of the potential drawbacks
and take these into account before deciding.
• your gross earnings are between £15,000* and £40,040,* or
• you earned less than £5,668,*
You need to be aware that salary sacrifice could affect your
current or future entitlement to a range of state benefits,
including the receipt of tax credits.
If your earnings (after salary sacrifice) fall below a certain
limit (currently £5,564* a year), you won’t be eligible for:
• statutory sick pay;
• statutory maternity, paternity or adoption pay;
• incapacity benefit;
• jobseeker’s allowance (although means-tested benefits
may still be claimed).
If you have not paid enough NIC on your income, basic state
pension may also be reduced on retirement.
then this may reduce the amount of your S2P.
Salary sacrifice should not reduce your cash pay to below the
national minimum wage. This means that if you are working
full-time and earn around £12,500 or less, you should take care
when considering any salary sacrifice scheme.
Other possible impacts are on your borrowing levels, such
as mortgage borrowing, credit card and personal loan limits,
income protection insurance benefits and redundancy
entitlements.
Pay-related benefits, such as overtime payments, life insurance
and salary increments and final salary pension benefits, may
be calculated on your ‘notional’ salary, i.e. your salary before
the sacrifice.
*2013/14 limits
Illustrations
Impact of saving for a pension through the PwC GPP on take‑home pay.
Example 1
Requesting maximum matched funding
Total monthly contribution into the GPP (4% of base pay) £80.00
Less PwC’s matched funding (2% of base pay) £40.00
£40.00
Less share of employer NIC saving (6% of £40.00)
Ian, age 25, Choices
category A, service less
than 5 years and base
pay £24,000 per annum
(£2,000 per month).
Choices Price (value of employee salary sacrifice)£37.60
Tax saving on salary sacrifice (20% of £37.60)
£7.52
Employee NIC saving on salary sacrifice (12% of £37.60)
£4.51
Reduction in take-home pay in exchange for the
£80 monthly pension contribution
2 |
£2.40
£25.57
Example 2
Requesting maximum matched funding
Total monthly contribution into the GPP (10% of base pay) Less PwC’s matched funding (2% of base pay) £200.00
£40.00
£160.00
Less share of employer NIC saving (6% of £160.00)
Ellen, age 27, Choices
category A, service over
5 years and base pay
£24,000 per annum
(£2,000 per month).
Choices Price (value of employee salary sacrifice)£150.40
Tax saving on salary sacrifice (20% of £150.40)
£30.08
Employee NIC saving on salary sacrifice (12% of £150.40)
£18.04
Reduction in take-home pay in exchange for the
£200 monthly pension contribution
Example 3
£9.60
£102.28
Requesting maximum matched funding
Total monthly contribution into the GPP (17% of base pay) £850.00
Less PwC’s matched funding (9% of base pay) £450.00
£400.00
Less share of employer NIC saving (6% of £400.00)
Peter, age 43, Choices
category C, base pay
£60,000 per annum
(£5,000 per month).
£24.00
Choices Price (value of employee salary sacrifice)£376.00
Tax saving on salary sacrifice (40% of £376.00)
Employee NIC saving on salary sacrifice (2% of £376.00)
Reduction in take-home pay in exchange for the
£850 monthly pension contribution
£150.40
£7.52
£218.08
| 3
A guide for PwC employees – salary sacrifice and pensions
Questions & answers
If I decide not to opt for salary sacrifice initially,
when can I join in the future?
You can join the PwC GPP at Choices annual renewal or at
a qualifying Lifestyle event. Joining the scheme is subject to
eligibility, the terms and conditions of the scheme and your
acceptance of a change to your contract of employment,
and the scheme continuing in existence.
Can I withdraw from salary sacrifice at any time?
The rules of the PwC salary sacrifice scheme mean that you
must commit to the scheme for a period of twelve months.
Are there any restrictions on eligibility for
salary sacrifice?
There are certain restrictions on eligibility. Your gross pay
must not fall below the national minimum wage of £6.31
an hour for adults aged 21 years and older before or after
the salary sacrifice reduction. This is at any time during
your employment.
Providing your salary is sufficient to cover the chosen salary
sacrifice amount you can remain in the scheme. If you are
not receiving pay, you will not be able to participate in a
salary sacrifice agreement until you return to work.
How will salary sacrifice affect my tax credits?
Tax credits are benefits for families with children and working
people on low incomes. The amount of tax credits you
receive depends on your total family income and your own
family circumstances.
What happens if I take unpaid leave?
While you are taking unpaid leave, you will not normally be
able to participate in a salary sacrifice arrangement, such as
the PwC GPP. However, PwC reviews each situation on a case
by case basis. Contact your HC Manager or People Manager.
Where can I get independent advice?
If you don’t already have an adviser you may be able to find
one using the contact details below.
Unbiased
www.unbiased.co.uk
The Personal Finance Society
www.findanadviser.org
You may be charged for this advice.
Can I sacrifice any redundancy payment?
Yes, you can sacrifice all or part of a redundancy or
separation payment but not through the firm or through
Choices. However, the first £30,000 of redundancy pay is
normally free of both tax and National Insurance (NI) so there
are few benefits to sacrificing this amount. Any amount over
£30,000 is subject to income tax at your normal rate, though
again there should be no NI liability. This means that the
benefits of sacrificing redundancy pay are not so clear cut as
with salary. You may wish to take professional advice before
making a decision. You may be charged for this advice.
For more information on redundancy payments, visit the
HMRC website at
www.hmrc.gov.uk/guidance/redundancy-factsheet.pdf.
HMRC administers tax credits and for more information on
how salary sacrifice could affect the amount of tax credits
you receive, call the tax credits helpline on 0345 300 3900.
This information is based on our understanding of current
legislation, taxation law and HMRC practice which may
change in the future.
If I apply for a mortgage, a loan or similar financial
transaction, what should I quote as my earnings?
The value of any tax relief depends on your financial
circumstances. Tax rules may change.
If you decide to opt for salary sacrifice to boost your pensions
contributions, your gross pay will be reduced due to salary
sacrifice and this may impact on your net spending income
and your ability to qualify for a mortgage or loan. This revised
figure will be the correct one.
Friends Life and Pensions Limited
An incorporated company limited by shares and registered in England and Wales, number 475201.
Registered office: Pixham End, Dorking, Surrey RH4 1QA. Authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Telephone 0845 602 9189 – calls may be recorded.
www.friendslife.com
Friends Life is a registered trade mark of the Friends Life group.
BPEN376/D 11.13 (38805)

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