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Salary Sacrifice Pensions Technical Services September 2009 Pension s Investmen t Protecti on

Salsac Av Brainshark Aug09 Jrr V3 Draft

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  • 1. Salary Sacrifice Pensions Technical Services September 2009 Pensions Investment Protection

2. What is Salary Sacrifice?

    • A simple idea
    • Salary
    • Contractual bonus
    • Discretionary bonus
    • Varying terms and conditions

3. The opportunity

    • Higher pension savings
    • No additional cost
  • Too good to be true?

Higher pension savingsNo additional cost 4. What would you like in your pension pot? Note: higher rate tax payer SalarySacrifice 5. For every 1 you earn

  • Before Salary Sacrifice:
    • 69p in your hand
    • Even with added tax relief, still only 86p
  • But with Salary Sacrifice:
    • Tax relief
    • Plus employer NI saving of 12.8%
    • Total employer contribution of1.13

Note: basic rate tax payer 6. For every 1 you earn

  • Before Salary Sacrifice:
    • 59p in your hand
    • Even with added tax relief, still only 98p
  • But with Salary Sacrifice:
    • Tax relief
    • Plus employer NI saving of 12.8%
    • Total employer contribution of1.13

Note: higher rate tax payer 7. Example report

  • Sacrifice 1,391 from gross pay
  • Net income stays same
  • Contributionsupby369a year* (30.75 each month)
  • No extra cost to employer

*assumes tax year 2009/10 and includes full employer NI saving Before sacrifice After sacrifice Gross earnings 30,000 28,609 Income tax 4,465 4,427 NI 2,671 2,518 Earnings less tax and NI 22,864 21,664 Personal contribution (gross) 1,200Nil Net income 21,664 21,664 Company contribution* Nil 1,569 8. Notional or reference salary

  • The notional or reference salary may be used to:
    • determine an increase in pay
    • calculate overtime rates
    • work out entitlement to holiday pay, sick pay etc
    • calculate other non-pension benefits, like death in service benefits

9. Which benefits might be adversely affected ?

  • State benefits
    • Contribution based:
      • Incapacity benefits
      • Jobseekers allowance
    • Earnings related:
      • State Second Pension (S2P)
      • Maternity allowance
  • Tax credits
    • Child tax credit
    • Working family tax credit

10. Setting up Salary Sacrifice

  • Salary given up before received
  • Letters exchanged before first payment
  • Usually month before sacrifice comes into force
  • Sacrifice should be for at least 12 months
  • Care over bonus sacrifice and timings

11. Arranging the sacrifice Example letter (on company headed paper) Dear With effect from dd/mm/yy your salary will reduce by xx pa (from yy pa to zz pa). In return we will pay a pension contribution of aa pa on your behalf. Please indicate your agreement to this reduction by signing both copies of this letter and returning one copy. For and on behalf of the company .. I confirm my agreement .. Date .. (prior to the date shown above) 12. HMRC help

  • http:// www.hmrc.gov.uk/specialist/salary_sacrifice.htm
    • Future remuneration must be given up before it is treated as received
    • Revised contractual arrangement must be that the employee is entitled to lower cash remuneration and a benefit

13. Website example 14.

    • Pension planning tools
    • Marketing literature
    • Individual illustrations
    • Group illustrations

AEGON and Salary Sacrifice Note: higher rate tax payer SalarySacrifice Good luck 15. Important information from our lawyers

  • This information is based on AEGON Scottish Equitables understanding of current legislation, taxation law and HM Revenue and Customs practice which may be subject to change.
  • Scottish Equitable plc, Registered Office: Edinburgh Park, Edinburgh EH12 9SERegistered in Scotland (No 144517).Authorised and regulated by the Financial Services Authority. Member of the AEGON Group. www.aegonse.co.uk