The Nuffield Health Retirement Savings Plan - Update: From April 2016 Nuffield Health will enter employees earning greater than £20,000 a year (£385 per week) into a salary sacrifice arrangement as a way to reduce the impact of pension contributions on take-home pay.
With the recent changes in the national minimum wage, Nuffield Health is increasing the earnings threshold for salary sacrifice to £20,000. Operating a salary sacrifice arrangement below this threshold may reduce your earnings below the minimum wage, which is not permitted under law.
What is salary sacrifice?
Salary sacrifice is a voluntary scheme, and you can opt out of salary sacrifice at any time by contacting the Pensions Team - firstname.lastname@example.org
You may have heard of salary sacrifice by other names such as ‘salary exchange’ or ‘smart pay’.
How does salary sacrifice work?
You give up part of your salary to the value of your pension contribution, and in exchange the amount you give up is paid by Nuffield Health into the Nuffield Health Retirement Savings Plan on your behalf. As you have given up part of your salary both you and Nuffield Health pay a lower level of National Insurance (NI) contribution. The NI savings mean that your overall take home pay is increased.
In the below example an employee earns £20,000 a year and salary sacrifice 5% of their salary (£1,000 per year) for an equivalent employer pension contribution. The new salary is £19,000. The employer pays £1,000 into the pension plan too, so the total pension contribution for the year is £2,000. The benefit of salary sacrifice in this example is that take home pay is increased by £120.
|Earning / Contribution||Before salary sacrifice||After salary sacrifice|
|Employee income tax||£1,912.00||£1,912.00|
|Employee pension contribution||£1,000.00||£0.00|
|Take home pay||£15,618.00||£15,738.00|
|Salary Sacrifice saving:||£120.00|
|Employer Pension Contribution:||£2,000.00|
Will Salary Sacrifice impact my other workplace salary related benefits?
Since Nuffield Health will be basing your salary related benefits on your salary before the sacrifice you will not be disadvantaged for other benefits such as group life assurance.
The result of sacrificing part of your salary is that you have a lower salary. However, Nuffield Health will calculate any salary related benefits, e.g. life assurance, pay reviews, shift and overtime allowances, on your gross salary (pre-sacrifice earnings.)
Will my State pension benefits be reduced if I contribute through Salary Sacrifice?
If your earnings, after Salary Sacrifice, reduce to less than the HMRC Lower Earnings Limit (£5,824 in the 2016/17 tax year), this could reduce your basic State pension entitlement. However, you would cease to be eligible for Salary Sacrifice if your earnings fall below £20,000 .
If I were to die in service my contributions would be refunded – will this still happen if the contributions are paid via a salary sacrifice arrangement?
Yes, the Nuffield Health Retirement Savings Plan is set up as a group personal pension plan, and as such Friends Life the administrator of the fund would pay the value of your fund to your next of kin or dependants.
Any entitlement to group life cover would also be paid based on your full pre salary sacrifice earnings.
I earn under £20,000 per annum, why can’t I enjoy salary sacrifice?
Employees earning under £20,000 per year are not being defaulted into a salary sacrifice arrangement to protect entitlements to certain state benefits based on National insurance contributions, and as earnings cannot be sacrificed below National Minimum Wage.
What else do I need to consider?
If you enter into a salary sacrifice arrangement you should consider whether the reduction in pay could impact your right to other benefits.
Salary Sacrifice should not affect your tax credits, and means tested benefits will be either unaffected or you may be more likely to qualify for these. Further information on these benefits may be obtained from the Tax Credit Helpline (0345 300 3900) or the Pension Service (0845 60 60 265).
I am already in the Nuffield Health Retirement Savings Plan making non-salary sacrificed contributions
All pension plan members earning more than £20,000 will be entered into a salary sacrifice arrangement for pension contributions. Salary sacrifice is a voluntary scheme, and you can opt out of salary sacrifice at any time by contacting the Pension Team email@example.com
What if my earnings fall below £20,000 a year?
If your earnings fall below £20,000 a year, you will cease to participate in the salary sacrifice arrangement but will re-enter the salary sacrifice arrangement when your earnings exceed this limit.
As my contractual salary is reduced as a result of Salary Sacrifice, will this affect the amount of mortgage or loan I could receive?
No, it shouldn’t have any impact. Reference letters provided by Nuffield Health for mortgage or loan purposes will refer to your contractual salary before Salary Sacrifice. As your take home pay (and therefore disposable income) will be higher as a result of contributing through Salary Sacrifice, this hasn’t historically caused a problem for lenders.
Is there any limit to the amount I can contribute as a result of Salary Sacrifice?
There is no limit to the amount you contribute through Salary Sacrifice, so long as you do not reduce your taxable earnings to less than £20,000.
Will contributing through Salary Sacrifice affect my student loan repayments as they are based on my earnings?
Yes. The repayments you are required to pay in respect of student loans will be lower as it is based on your pay after the Salary Sacrifice reduction. Of course, if you pay off your loan at a lower rate, you may end up paying it back over a longer period.
How often can I change my level of pension contributions through Salary Sacrifice?
You can revise your pension contributions once a month by contacting the Pensions Team.
How will Salary Sacrifice affect maternity pay and pension contributions?
In the first six weeks of Statutory maternity leave, your gross statutory maternity pay will be slightly lower, reflecting your recent earnings post Salary Sacrifice, but you won’t need to pay pension contributions and still enjoy the NI savings. After the first six weeks, Statutory Maternity Pay is currently a flat amount (£136.78 per week for most people). However, Nuffield Health isn't permitted to "exchange" part of Statutory Maternity Pay (if you were paying normal employee pension contributions, they would be deducted). As a result, your net (take-home) pay whilst on paid Statutory maternity leave will be higher as a result of Salary Sacrifice.
Although Nuffield Health isn't permitted to "exchange" part of Statutory Maternity Pay, it must continue to pay its contributions (including Salary Sacrifice contributions) at their full rate, so you are even better off during maternity leave.
Where Nuffield Health pays more than just Statutory Maternity Pay, it is permitted to exchange some of it to recoup your pension contributions (provided you do not receive less than the full Statutory Maternity Pay). However, this is no different to whilst you are working normally, the pension contribution still gets paid and you enjoy a National Insurance saving.
This would also apply to paid parental, paternity or adoption pay.
Special note for higher rate taxpayers
As you will not pay tax on Nuffield Health’s pension contributions, effectively you will automatically benefit from higher rate tax relief on your contributions if you contribute through Salary Sacrifice.
Without Salary Sacrifice:
- The contribution is deducted from pay after income tax and the amount deducted is calculated minus basic-rate tax.
- Basic rate tax relief is reclaimed by the pension provider and added to your pension account.
To receive full higher rate tax relief on your contribution, you would need to contact HM Revenue & Customs to have your tax code adjusted or reclaim the difference between the basic and higher rate of tax on your tax return.
With Salary Sacrifice:
- Your pay before income tax deduction is reduced by the full (gross) amount of your contribution.
This means that, while the amount contributed to your pension is the same as if you paid employee contributions outside of Salary Sacrifice, the equivalent of full higher rate tax relief is automatically reflected in your take home pay.
What do I do next?
If you want to take part in Salary Sacrifice and earning more than £20,000 you do not need to do anything. However, if you want to opt out, please email the Pensions Team.