Pension Salary Exchange

Transcription

1 Pension Salary Exchange An Explanation of Salary Exchange relating to the Abbott Retirement Saver (2015) Salary Exchange is simply a way of paying pension that will save you money. Salary Exchange works exactly as its name suggests you exchange some of your salary for a pension contribution. The amount of money being paid into the Abbott Retirement Saver (2015) ( The Scheme ) does not change and your pension benefits are unaffected. However, by paying in this way, your take home pay will increase. How does it work? A summary What will happen: As a result: Employee cease Reference salary is reduced Employ er contribution increases (by amount of the salary reduction) EMPLOYEE become EMPLOYER As your basic salary will be lower, both you and the Company will pay less National Insurance (NI). The total amount paid into the Scheme and your benefits from the Scheme will remain the same. In addition, the Company currently chooses to share part of its NI saving with you so you can enhance your other (non-pension benefits) as a result of Salary Exchange. If you contribute through Salary Exchange, you will receive about 40% of the NI savings made by the Company on your normal pension contribution. You will receive this payment through payroll (subject to tax and NI). Salary Exchange is a change to your terms and conditions of employment, in that you receive a slightly reduced salary in exchange for extra pension from the Company. Unless contributing through Salary Exchange would reduce your total earnings to less than the amount required under National Minimum Wage regulations or you choose to opt out of salary exchange, your terms and conditions of employment will be revised to make the deduction to your salary, equivalent to the amount you would otherwise pay as a pension contribution. The Company will then pay the salary reduction as a pension contribution to the Scheme.

2 National Insurance Tax National Insurance Tax More information The diagram below illustrates the position before and after Salary Exchange. Beneath the diagram there is an example of pay and pension based on earnings (before deductions) of 25,000. Before BEFORE the introduction Salary of Pensions Exchange SalaryExchange AFTER After the Salary introduction Exchange of Pensions SalaryExchange Reference Salary Additional employer contribution of 25% of Company NI saving Your pension Your gross contractual salary Your gross contractual salary Employer (SalaryExchange) pension These are in addition to the Company s normal employer. Your Reference Salary (contractual salary before Salary Exchange) will still be used to determine other pay and payrelated benefits for example overtime, shift premiums, allowances, sick pay and life assurance cover. An example The following example is based on an employee who has a contractual salary (shows as Reference Salary on payslip) of 25,000 per annum and who pays 6% of that salary ( Retirement Saver Ees Pens on payslip). The tax calculations use a Basic Rate (BR) tax coding, so for an employee who qualifies for the personal allowance the income tax on both sides of the example would be less. Before the introduction of Salary Exchange Your Pay Payments Deductions Take Home Pay Reference salary (before deductions) 25,000 Salary Exchange Your Pay Payments Deductions Take Home Pay Reference Salary (before deductions) Ers NI Save Reference Salary is the same as your Basic Salary before Salary Exchange 25,000 Retirement Saver Ees Pens (by Salary Exchange reduction) 1, Retirement Saver Ees Pens (6% of Reference Salary) 1, Income tax 4, National Insurance 2, Reference Salary 25,000 Total deductions 8, , There is no change to the income tax payable. You don t pay income tax on pension, so the net income tax effect is the same whether the contribution is paid as an employee or an employer contribution. Income tax 4, National Insurance 1, Reference Salary 25, Total deductions 8, , Contributions towards your pension* But you do pay less NI Contribution towards your pension* Your normal contribution paid as employee contribution 1, Your normal contribution paid as employer contribution 1, Your share of the employer NI saving paid to you through payroll This payment will be subject to tax and NI. The effect of Salary Exchange * If you pay by Salary Exchange, Abbott will pay these in addition to its own 12 % contribution directly into your pension pot. The company currently chooses to pay approximately 40% of its NI saving (based on the contribution you pay) to you through Payroll ( Ers NI Save ). This payment is subject to tax and NI.

3 Increases to your pay The increase to your take home pay as a result of Salary Exchange is based on the amount of NI saved. This depends on your reference salary and the amount you contribute. A summary is included below along with a table showing how much you could save at various salary levels. (a) Your NI saving: In the 2016/17 tax year you will save 12% on any reduction in earnings between 8,060 and 43,000 and 2% of any reduction over 43,000. In other words, if you pay NI, for every 100 you contribute to The Scheme, you will save between 2 and 12 in NI (depending on the amount you earn). (b) The Company s NI saving: In the 2016/17 tax year the Company will save 13.8% on any reduction in your earnings over 8,112. The Company currently chooses to pay to you 40% of its NI saving from Salary Exchange. Generally, for every 100 of to The Scheme paid through Salary Exchange, you will receive 5.52 paid to you through Payroll, subject to tax and NI. Your questions answered To give an idea of the NI savings you could make, the table below gives examples based on a range of salaries. Earnings before reduction (Annual reference salary before Salary Exchange) Pensionable Earnings (Reference Salary) 15,000 20,000 30,000 40,000 60,000 80,000 15,000 20,000 30,000 40,000 60,000 80,000 6% pension contribution , , , , , Your NI saving (per annum) Increase to your take-home pay Your share of the employer saving (per annum) before tax and NI If you are over State Pension Age you do not pay employee NI so there will be no NI saving. However, you will still benefit from the 40% sharing of the Company s NI saving. The figures above are examples calculated on the assumption that your basic and total earnings are the same. Why does the Company use Salary The Company uses Salary Exchange as it is beneficial both to employees and the Company. It is a common method of arranging pension, as it reduces the National Insurance payable by employees and employers in a way which is acceptable to HM Revenue & Customs, without reducing the paid to or benefits payable from The Scheme. Who is eligible to contribute through Salary You are eligible to contribute through Salary Exchange as long as this doesn t reduce your taxable earnings to less than that required under the National Minimum Wage regulations. It is not possible to reduce your annual earnings to less than the HM Revenue & Customs Lower Earnings Limit ( 5,824 for 2016/17). This is because entitlement to some State benefits (such as Statutory Sick Pay and Jobseeker s Allowance) may be affected. Some of the benefits offered through Abbott Life are also paid for by exchanging salary. So, if you have selected benefits through Abbott Life, the total amount of Salary Exchanged for these benefits and your pension, must not take your salary (before tax and NI) beneath these limits.

4 How do I arrange to contribute by Salary All for eligible employees are automatically paid through Salary Exchange unless you are ineligible or choose not to do so (see below). Do members of The Scheme have to contribute through Salary No. Although most eligible members are likely to benefit, you may, if you wish, choose not to contribute through Salary Exchange, in which case you will not make any NI savings. If you don t wish to participate in Salary Exchange please contact the Pensions Department. Will I benefit from income tax relief on pension through Salary With Salary Exchange, your will instead be paid as employer. As you don t pay income tax on pension (whether made by you or your employer) the net income tax effect is the same. Will any social security benefits be affected as a result of paying salary exchange? For information on how Salary Exchange can affect benefit entitlement, you should contact the Department of Work and Pensions on or alternatively you can contact your local social security office. For more detailed information please refer to Will my other pay (e.g. overtime) and the salary-related benefits provided by the Company (e.g. life assurance) be based on my reduced salary following Salary Exchange, or my original contractual salary? There will be no impact on your other pay (e.g. overtime, shift premium, year-end gratuity or commission), or your salary-related benefits (e.g. your life assurance and your Pensionable Earnings) as a result of Salary Exchange. Your contractual salary before Salary Exchange (the pay that you receive that shows as Reference Salary on your payslip) will continue to be used to calculate salary-related benefits and other pay. What happens if I go on maternity leave? Pension will continue to be paid during paid leave (typically weeks 1 to 39) in line with Government recommended guidelines. During extended and unpaid maternity leave no pension will be due. If you still pay National Insurance, Salary Exchange will not affect the amount of State Pension you receive If participating in Salary Exchange means that your earnings are reduced below 5,824 p.a. (2016/17 rate), then it may not be worthwhile participating in Salary Exchange. You need 35 years of National Insurance or credits to get the full amount of single tier State Pension. As my contractual salary is reduced as a result of Salary Exchange, will this affect the amount of mortgage or loan I could receive? It shouldn t have any impact. Reference letters provided by the Company for mortgage or loan purposes will refer to your reference salary before Salary Exchange. If I opt out of Salary Exchange, will I be able to opt in at a later date? Yes. You will get the chance to opt in to Salary Exchange once a year through Abbott Life. Will paying Salary Exchange affect my student loan repayments as they are based on my earnings? Yes. The amount you are required to pay in student loans will be lower as it is based on your pay after the Salary Exchange reduction. Of course, if you pay off your loan at a lower rate, you will end up paying it back over a longer period. How long will Salary Exchange be in place? The intention is for Salary Exchange to remain in place indefinitely. However, as Company circumstances and legislation may change, we reserve the right to withdraw Salary Exchange without notice or compensation, and reintroduce employee. In this event, your basic salary (which has been reduced as a result of Salary Exchange) would be increased by the amount of your Salary Exchange which would then be deducted from your earnings and paid as a normal employee contribution. I work outside the UK. Can I still participate in Salary No, for anyone who is on an assignment the payment method would be changed to non-salary exchange. What if I take unpaid leave? While you are on unpaid leave there will be no pension paid by you or the company. Will my state pension benefits be reduced as a result of contributing through Salary

5 What if I have any further questions? If you have any questions regarding Salary Exchange please contact the Pensions Department: Telephone: (option 3 for pension enquiries) mark.jones@abbott.com Please note: We cannot provide you with individual financial advice and this document does not do so. If you require advice, you can find details of your nearest financial adviser at