Supporting workplace clients

The employee agrees to give up part of their gross salary. The employee’s salary is reduced by that amount. The employer pays that amount into the company pension plan on behalf of the employee.

Benefits of salary exchange:

• Employee National Insurance Contribution (NIC) savings – the employee doesn’t need to pay any NICs on that part of the salary which has been given up
• Employer NIC savings – the employer would normally see a saving of 13.8% of the salary that the employee exchanges
• Simpler tax relief – since the payment is taken before gross salary is paid, the employee still effectively receives tax relief at the highest rate paid – this makes receiving pension tax relief simpler for higher and additional rate taxpayers
• Potentially improved pension benefits – employees can increase the value of their benefits package at no extra cost

The employer could decide to also invest some of the employer’s NIC savings in the plan, boosting the employee’s pension fund even more.

Salary exchange won’t suit everyone – it may affect eligibility for benefits and ability to obtain credit.

To see the difference salary exchange can make, use our Salary Exchange Calculator.