Smart Pensions: Frequently Asked Questions

Transcription

1 Smart Pensions: Frequently Asked Questions Ashtead Group plc and Ashtead Plant Hire Company Limited (together the Company ) use Smart Pensions as a more efficient way to pay contributions into the pension plan with Legal & General, called the A Plant Retirement Plan ( the Plan ). This document includes a number of frequently asked questions that explain how Smart Pensions works and how this can benefit you as a member of the Plan. Q1: What is Smart Pensions? A1: Smart Pensions is a contractual arrangement between an employer and an employee under which an employee gives up a proportion of his / her salary in return for non-cash benefits from their employer. Where Smart Pensions is in place for a pension plan, the employer pays the amount given up by the employee into the pension plan on behalf of the employee, in addition to any employer contributions. This type of arrangement is frequently used in pension plan design because both the employee and the employer can save National Insurance (NI) in doing so. Smart Pensions is recognised by HMRC and is known to them as Salary Sacrifice. Q2: How does Smart Pensions work? A2: It works in the following way: Your contractual salary will be reduced by an amount equivalent to your core pension contribution and this amount is then paid by the Company into the Plan; In addition, the Company pays its regular employer contributions into the Plan. Taking part in Smart Pensions represents a change to your terms and conditions of employment, for the sole purpose of changing how pension contributions are made. The advantage of paying contributions in this way is that NI is not paid on the amount of salary you sacrifice in exchange for additional pension contributions from the Company. Q3: What if I do not want to pay contributions to the Plan using Smart Pensions and wish to make pension contributions as a deduction from pay? A3: You will automatically participate in Smart Pensions unless you choose not to make your contributions in this way. You can choose whether or not you want to make Smart Pensions contributions and / or change your contribution level to the Plan at any time. In order to make your contributions as a deduction from pay rather than using Smart Pensions, you will need to contact payroll. Otherwise, you will be deemed to have agreed to this change to your terms and conditions of employment when you are first paid by the Company. Q4: How do I benefit from Smart Pensions? A4: Because you do not pay NI on Smart Pensions contributions, it will cost you less to make contributions to your Pension Pot, compared with making contributions as a deduction from pay. The value of this benefit to you will depend on your total earnings and pension contribution rate. Page 1 of 6

2 Compared with making contributions as a deduction from pay, the NI saving from Smart Pensions will be: 12% of Smart Pensions contributions made from earnings up to 45,000 for the 2017/18 tax year (ie for basic rate taxpayers); and 2% of Smart Pensions contributions from earnings above this level (ie for higher rate taxpayers). As an example, the table below shows how much it would cost you (ie by how much your take home pay would reduce) to contribute 100 to your Pension Pot (including the Employer contribution) if you make Smart Pensions contributions, compared with if you make contributions as a deduction from pay. Cost to employee to contribute 100 to Pension Pot Smart contribution Deduction from pay Basic rate taxpayer Higher rate taxpayer As you can see, whether you are a basic rate taxpayer or a higher rate taxpayer, it costs you less to make the same total contribution to your Pension Pot if you make Smart Pensions contributions. These figures have been calculated using the tax and NI rates that apply in the tax year 2017/18. These may change in the future, in which case the costs to employees will vary from those shown above. To find out more, please take a look at the Salary Sacrifice Calculator on the Plan website. Q5: How will my payslip look? A5: Your payslip will show your Preserved Basic Salary as normal, but you will see your Smart Pensions contribution on a separate line as a deduction from your Earnings. As a result your Total Earnings will be shown as a lower number than your Preserved Basic Salary and your Tax and NI Deductions will be calculated based on this lower Total Earnings figure. Q6: Are there any other benefits the Company offers using this mechanism? A6: Yes. Both the Childcare Voucher and Cycle to Work schemes use this same mechanism. Further information about these benefits can be obtained from the A-Plant Payroll Department. Q7: Is Smart Pensions right for everyone? A7: We expect the majority of employees will benefit from using this method to make contributions to the Plan. However, Smart Pensions is not right for everyone. You are not permitted to participate in Smart Pensions if it would reduce your salary to below the current National Living Wage (NLW) if you are 25 or older or below the National Minimum Wage (NMW) if you 24 or younger. Page 2 of 6

3 The Company will also ensure that your earnings do not fall below the level that could affect your entitlement to some State related benefits. This is known as the Smart Pensions Threshold and is currently 8,164 p.a. ( 680 per month/ 157 per week). Anyone with earnings below this level or whose earnings will fall below the NLW/NMW (as applicable) by participating will not be included in Smart Pensions. Equally, if your earnings fall below these limits at a later date, you will automatically be withdrawn from participating in Smart Pensions, but you will remain in the Plan. We will contact you separately if we believe you should not participate in Smart Pensions. Anyone who chooses not to make Smart Pensions contributions (see question 3) or is automatically excluded from Smart Pensions will make employee contributions to the Plan as a deduction from pay. Q8: What if I am over State Pension Age (SPA) and therefore do not pay NI? A8: If you have reached SPA you will not make a saving by participating in Smart Pensions, but equally you will be no worse off. As a result, you will be included in Smart Pensions on the same basis as all other employees, unless you choose not to make contributions in this way. Please refer to question 3 for further details. Q9: How long will Smart Pensions be in place? A9: Smart Pensions will continue indefinitely but if tax and NI regulations change or pensions law changes, or if it is no longer viable for the Company to operate the Plan on this basis, the Company reserves the right to alter any aspects of the arrangement or withdraw it completely. If Smart Pensions is withdrawn, your salary would revert back to your Preserved Basic Salary before Smart Pensions and your employee pension contributions would be made as a deduction from pay. Q10: What if I want to change my level of contributions? A10: You can change your contribution level to the Plan at any time. You should complete the Change of Contribution Form that can be found on the Plan website and return it to the A-Plant Payroll Department, who will action your request from the next payroll run. Q11: Will Smart Pensions affect how much Income tax I pay? A11: Pension contributions attract the same level of Income tax relief whether paid by Smart Pensions or as a deduction from pay. As the Plan is a Master Trust arrangement, you will receive full tax relief directly via payroll and so you do not need to take any action to claim tax relief on your pension contributions, regardless of whether you participate in Smart Pensions or not. Q12: If I choose to make additional contributions into the Plan, will these be treated as a Smart Pensions contribution? A12: No, any additional contributions made through payroll, whether a regular monthly payment or a one-off lump sum, will not be included in Smart Pensions and will be made as a normal deduction from pay. If you choose to make an additional one-off contribution directly to Legal & General, you may need to claim tax relief through self-assessment. Page 3 of 6

4 Q13: Does Smart Pensions have an impact on the pension benefits that count towards the Annual and Lifetime Allowances? A13: No. Participating in Smart Pensions does not in itself change the amount of contributions being paid into the Plan on your behalf. It is your responsibility to check whether total pension contributions made by you or on your behalf each year exceed the Annual Allowance tax threshold and whether your total Pension Pot exceeds the Lifetime Allowance for tax purposes. The Annual Allowance is 40,000 for the 2017/18 tax year, although this can be reduced for high earners, subject to a minimum Annual Allowance of 10,000. If you have taken any taxed benefits from a defined contribution pension scheme, you may also be subject to a lower limit known as the Money Purchase Annual Allowance (MPAA) which is 4,000 for the 2017/18 tax year. The Lifetime Allowance for tax purposes is 1m for most people for the 2017/18 tax year. This can be a complicated area and you may wish to take independent advice, as if you do exceed these limits, you may be subject to an additional tax charge. This is only likely to impact you if you make substantial additional pension contributions and / or have a high salary. If you have any sort of Lifetime Allowance Protection in place, please provide details to the A-Plant payroll department. Q14: Does Smart Pensions affect other Company sponsored earnings-related benefits? A14: Taking part in Smart Pensions does not impact any other Company benefits you receive. These benefits will be calculated and assessed on your Preserved Basic Salary (ie salary before pension contributions are taken via Smart Pensions). The following are all examples of salary related benefits which (if you are entitled to these payments) will be based on Preserved Basic Salary: pension contributions; life assurance; salary reviews; bonuses; overtime; holiday pay (whether owed by you or the Company); and occupational sick pay. Q15: Will Smart Pensions affect my State earnings related benefits? A15: No. As explained in question 7, the Company will ensure that your earnings do not fall below the level that could affect your entitlement to some State related benefits (currently 8,164 p.a.). If your income falls below this level, continued participation in Smart Pensions could affect your entitlement to State benefits such as the Basic State Pension, sick pay or incapacity benefit. The reason for this is because eligibility to some State benefits is based on your earnings and the amount of NI that you pay. If you are in receipt of State benefits and are unsure whether these will be affected by Smart Pensions you may want to seek independent financial advice. Page 4 of 6

5 Q16: How will Smart Pensions affect any mortgage reference? A16: Any information on salary provided to a mortgage company will use your Preserved Basic Salary (ie before the Smart Pensions deduction). Most mortgage companies are familiar with the concept of Smart Pensions. Q17: Will Smart Pensions impact maternity, paternity and adoption arrangements? A17: The Company will continue to make contributions to the Plan during periods of ordinary and additional maternity leave or while you are on statutory adoption or paternity leave. The Company contributions will be calculated based on your Preserved Basic Salary that you would have been receiving had you not been on maternity, paternity or adoption leave. During this period the Company contribution includes the pension contributions you were making under Smart Pensions. Your Smart Pensions deduction will be calculated as the relevant percentage of the pay that you are actually receiving (if any). However, no Smart Pensions deduction will be made if you are receiving statutory maternity, paternity or adoption pay only. Similarly, if your pay drops below the Smart Pensions Threshold, no Smart Pensions deduction will be made. Q18: What happens if I go on sick leave? A18: If you go on sick leave, you will continue to be included in Smart Pensions until you start to receive long term statutory sick pay. In this case you will be opted out of Smart Pensions and employee pension contributions will continue to be paid as a deduction from pay. We will assess your earnings when you return to work and automatically put you back into Smart Pensions unless you may not benefit. Q19: What happens if I leave the Company? A19: If you leave the Company and therefore are no longer a member of the Plan, Smart Pensions will make no difference to your options. Q20: Will Smart Pensions affect my student loan repayments? A20: Yes, if you have a student loan, repayments will be deducted from your salary if your total earnings are above the relevant repayment threshold, which depends on when you took out the loan and the type of loan. The calculation of your repayments is based on your salary after Smart Pensions (i.e. not your Preserved Basic Salary) and so your student loan repayments could decrease or stop altogether as a result of taking part in Smart Pensions. If you wish to continue to redeem your student loan at a higher level, you can make personal arrangements with the Student Loans Company. Further information about payments to the Student Loans Company can be found here at Page 5 of 6

6 Q21: Will Smart Pensions impact my eligibility to tax credits? A21: Tax credits are payments from the government straight into your bank account. Many people become eligible for tax credits when they have a baby. There are two types Child Tax Credit and Working Tax Credit. Participation in Smart Pensions may impact your current entitlement to tax credits. If you participate in the Childcare voucher scheme this may affect the amount of tax credits which you may be entitled to. HMRC has set certain thresholds around when it needs to be notified of a change in your taxable salary; further information can be found at HMRC have an online calculator to help you decide whether, overall, you would be better off participating in Smart Pensions. This can be found at Q22: What if I do nothing? A22: You will automatically be opted into Smart Pensions for all core employee pension contributions and you will be deemed to have consented to participate in Smart Pensions. Q23: Where can I get further information? A23: For further information please contact the A-Plant Payroll Department at PayrollFax@aplant.com or on The HM Revenue & Customs website has lots of information regarding Smart Pensions, how it works and answers to frequently asked questions. The website address is Page 6 of 6