Insight
Salary Exchange (also known as Salary Sacrifice and SMART pensions) – Employers Guide
- Written by Martin Collins
- Published on: 18/12/2024
Salary Exchange (also known as Salary Sacrifice and SMART pensions) is an arrangement employers may make available to employees. 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.
Why Salary Exchange should be a priority for your business
The Autumn Budget 2024 introduced significant tax reforms aimed at funding government spending and supporting wage growth. With an estimated £40 billion in tax increases and spending reductions, business owners are set to shoulder much of the impact.
A key change is the increase in employer National Insurance (NI) contributions from 13.8% to 15%, projected to bring in an additional £20 billion annually by 2025*. Here’s why salary exchange is a crucial strategy for businesses to consider in managing these additional costs.
How Salary Exchange can help offset the impact
Reduction in Employer NI Contributions: Salary exchange can lower the total salary that is subject to NI.
Enhanced Employee Take-Home Pay and Benefits: Salary exchange can also increase employees’ net pay. Employers can also choose to allocate some of the NI savings back to employees’ pensions, enhancing retirement benefits without raising payroll costs.
The above table is based on a generic example and assumes 5% employee pension contribution on average pensionable earnings of £35,000.
Download our Salary Exchange (also known as Salary Sacrifice and SMART pensions) Employers Guide
How Pareto can help you to implement Pensions Salary Exchange
- Support with HMRC and the Pension Regulator rules.
- Design a Pensions and Salary Exchange process and rules document.
- Draft of pension communications.
- Project Management of pension change.
- Pension and salary exchange presentation with employees.
To discuss any issues raised in this article, please contact your Pareto Financial Planning adviser or call the office on 0161 819 1311.
