Smart Pensions. Questions and Answers

Transcription

1 Smart Pensions Questions and Answers, January 2017

2 Contents Page 1 How does Smart Pensions work? What is Smart Pensions? What are the benefits of Smart Pensions? How does Smart Pensions affect my pay? What difference will I see if I use Smart Pensions (BTPS)? What difference will I see if I use Smart Pensions (BTRSS)? Why does BT offer Smart Pensions? Do I have to participate in Smart Pensions? Can I stop using Smart Pensions in future? Can I change my contribution percentage? Can I back-date using Smart Pensions? Can I use Smart Pensions if I m buying added years in the BT Pension Scheme? Can I make only some of my regular contributions using Smart Pensions? Are lump sum additional payments to my pension scheme included in Smart Pensions? How long will BT offer Smart Pensions? How do I know if I am already a Smart Pension member? Is there a maximum level of contribution that can be included in Smart Pensions? Will Smart Pensions vary my contract of employment? 7 2 My Company benefits and employment How will Smart Pensions affect my pension benefits? Will my investment choices change? How will Smart Pensions affect my death in service benefits? Will it impact anything else I get from BT? How will Smart Pensions affect the BT employee share plans? How will mortgage providers take account of Smart Pensions? What happens if I am seconded overseas? 8 3 State Benefits and HM Revenue & Customs Can everyone use Smart Pensions? How does Smart Pensions impact on my State Benefits? Does Smart Pensions affect statutory sick, maternity, adoption, paternity or shared parental pay? Will Smart Pensions affect the amount of State Pension I build up? Will Smart Pensions affect my income tax position? Will using Smart Pensions affect my pensions Annual Allowance? Does Smart Pensions impact on my entitlement to claim tax credits? Will my Student Loan payments be affected? How does Smart Pensions impact on the Child Benefit Tax Charge? Haven t the Government changed the Rules on salary sacrifice arrangements? 10 4 Further information How do I get more information on Smart Pensions? 10 Page 2 of 11

3 1 How does Smart Pensions work? 1.1 What is Smart Pensions? Smart Pensions is a cost effective way of making payments to your BT pension arrangement. It s an agreement between you and BT, where you agree to forego part of your salary in return for BT making pension contributions on your behalf. You save money because the National Insurance contributions you pay are lower. BT reduce your salary before tax by the amount of your contribution to your BT pension arrangement. BT then add in their contribution and pay the total to your BT pension arrangement on your behalf. Reducing your salary before tax means you save on the National Insurance Contributions you pay, increasing your take-home pay. BTRSS members only: If you are a higher rate tax payer, you get the additional benefit of immediate tax relief at the higher rate so you won t have to claim it through your tax return. 1.2 What are the benefits of Smart Pensions? Your take home pay is increased because you pay less in National Insurance contributions (assuming you make no other changes to your pay and pension contribution levels). BT also pays lower employer National Insurance contributions on your earnings. 1.3 How does Smart Pensions affect my pay? Smart Pensions changes your terms and conditions of employment by reducing your contractual pay by the amount of your contributions. In return BT pays that same amount as an employer contribution to your pension arrangement. BT continues to record your annual basic salary before any adjustment for Smart Pensions or other salary sacrifice elements. Page 3 of 11

4 1.4 What difference will I see if I use Smart Pensions (BTPS)? Your take home pay will increase. You will also notice a change on your payslip. You will no longer see a pension contribution under DEDUCTIONS; instead you will see a Smart Pension Adjustment under PAYMENTS. (You may also see Smart AVC Adjustment.) Your payslip will show that your contractual pay is lower than your Base Pay, by the amount of the Smart Pension adjustment(s). An example of how your payslip may look different after Smart Pensions is shown below. This is for a member of BTPS contributing 7% p.a. If you are a member of the BTRSS please look at 1.5. Non-Smart member of BTPS GROSS PAY TAX NI CONTRIBUTION PENSION OTHER DEDUCTION NON TAXABLE PAY 1, NET PAY PAYMENTS DEDUCTIONS Base Pay 1,000 CONTRACTUAL PAY 1,000 GROSS PAY 1,000 Pension: BTPS Member Employee Contributions 70 Smart member of BTPS GROSS PAY TAX NI CONTRIBUTION PENSION OTHER DEDUCTION NON TAXABLE PAY 930 NET PAY PAYMENTS DEDUCTIONS Base Pay 1,000 Smart Pension Adjustment -70 CONTRACTUAL PAY 930 GROSS PAY 930 Pension: BTPS Member Page 4 of 11

5 1.5 What difference will I see if I use Smart Pensions (BTRSS)? Your take home pay will increase. You will also notice a change on your payslip. You will no longer see a pension contribution under DEDUCTIONS; instead you will see a Smart Pension Adjustment under PAYMENTS. (You may also see Smart AVC Adjustment.) Your payslip will show that your contractual pay is lower than your Base Pay, by the amount of the Smart Pension adjustment(s). You will also notice that the amount of the Smart Pension Adjustment appears to be more than the contribution deduction that is made if you don t use Smart Pensions. This is because Smart Pensions effectively gives you tax relief immediately, instead of this being added back by Standard Life into your pension plan. With Smart Pensions, a reduction is made to your taxable earnings, instead of a deduction (net of basic rate tax at 20%) being taken from your after-tax pay. An example of how your payslip may look different after Smart Pensions is shown below. This is for a member of the BTRSS contributing 5% p.a. If you are a member of the BTPS please look at 1.4. Non-Smart member of BTRSS GROSS PAY TAX NI CONTRIBUTION PENSION OTHER DEDUCTION NON TAXABLE PAY 1, NET PAY PAYMENTS DEDUCTIONS Base Pay 1,000 CONTRACTUAL PAY 1,000 GROSS PAY 1,000 Pension: Money Purchase Pension Scheme Voluntary Deductions: BT Retirement Saving Scheme 40 Smart member of BTRSS GROSS PAY TAX NI CONTRIBUTION PENSION OTHER DEDUCTION NON TAXABLE PAY 950 NET PAY PAYMENTS DEDUCTIONS Base Pay 1,000 Smart Pension Adjustment -50 Smart AVC Adjustment 0 CONTRACTUAL PAY 950 GROSS PAY 950 Pension: Money Purchase Pension Scheme Page 5 of 11

6 1.6 Why does BT offer Smart Pensions? BT wants employees to achieve the best value from the benefits on offer. We ve run Smart Pensions since It reduces National Insurance contributions for both employees and BT. 1.7 Do I have to participate in Smart Pensions? No. If you decide not to participate in Smart Pensions, you can complete an Election not to participate in Smart Pensions. If you aren t using Smart Pensions to make your pension contributions, you can ask to join at any time by completing a Smart Pensions Application Form. Choosing not to participate in Smart Pensions will not cease your membership of, or contributions to, either the BTPS or BTRSS. It only changes the way those payments are made and the amount of National Insurance Contributions you pay. 1.8 Can I stop using Smart Pensions in future? Smart Pensions is an agreement between you and BT about how payments are made to your pension arrangement. You can ask to change that agreement and stop participating in Smart Pensions at any time by completing an Election not to participate in Smart Pensions. We ll take you out of Smart Pensions from the 1st of the month after we receive your form. However, if BT has automatically put you in Smart Pensions then, unless otherwise specified, you have one month (from the date we wrote to you) to tell us you don t agree to use salary sacrifice for your pension contributions. You can tell us by completing an Election not to participate in Smart Pensions. 1.9 Can I change my contribution percentage? Both the BTPS and the BTRSS have a minimum level of contribution that you pay while you are a member. You can pay more than this if you want to, and if you re using Smart Pensions, any regular additional contributions you pay will be included in Smart Pensions. For BTPS members these regular additional contributions include AVCs and monthly contributions towards added years. Because Smart Pensions is an agreement between you and BT about how payments are made, if you want to increase or decrease the regular percentage of your pensionable pay you want to make to your pension then we need to know in advance, so we can update your terms and conditions to reflect this. You make changes to your pension contribution level by contacting your pension arrangement, so be sure to do this before the end of the month before you want the change to have effect. Contribution changes can only start from the 1st of the month after we have received your application form Can I back-date using Smart Pensions? No, we can only make changes to your Smart Pensions participation that take effect from a future date Can I use Smart Pensions if I m buying added years in the BT Pension Scheme? Yes, if you are making regular payments towards added years, then these will be included for Smart Pensions. Page 6 of 11

7 1.12 Can I make only some of my regular contributions using Smart Pensions? No, if you are taking part in Smart Pensions, all regular pension contributions you make will be included Are lump sum additional payments to my pension scheme included in Smart Pensions? No, lump sum payments made through payroll or directly to your pension arrangement are not included in Smart Pensions. BT may also offer a bonus sacrifice arrangement, which works in a similar way to Smart Pensions, and will provide separate details of any such arrangement How long will BT offer Smart Pensions? BT intends to operate Smart Pensions indefinitely. However, if the tax or, National Insurance rules or rates or pensions law changes, or if for some other reason it is no longer beneficial for BT and its employees to operate this arrangement, BT reserves the right to withdraw Smart Pensions How do I know if I am already a Smart Pension member? If you are participating in Smart Pensions you will see an element of Smart Pensions Adjustment in the PAYMENTS column on your payslip Is there a maximum level of contribution that can be included in Smart Pensions? If you are participating in Smart Pensions then you should not make regular additional contributions at a level that will cause your contractual pay (after reduction for salary sacrifice) to fall below the National Living Wage (or the National Minimum Wage if you are under age 25). If you do, BT may restrict the level of additional contribution you make or may remove you from participation in Smart Pensions Will Smart Pensions vary my contract of employment? Participation in Smart Pensions constitute a variation of contract. This variation will be effective only for the duration of your participation in Smart Pensions. There will be no other alterations to your terms and conditions of employment. Page 7 of 11

8 2 My Company benefits and employment 2.1 How will Smart Pensions affect my pension benefits? Smart Pensions will not affect the overall contributions made to, or resulting benefits you will receive from, your pension arrangement. 2.2 Will my investment choices change? Your investment choices for your BTRSS contributions, or your BTPS AVCs, will not be affected if you participate in Smart Pensions. 2.3 How will Smart Pensions affect my death in service benefits? Your death in service benefits will be unaffected by Smart Pensions. These will continue to be calculated before any reduction for Smart Pensions. 2.4 Will it impact anything else I get from BT? Participating in Smart Pensions will have no impact on other benefits received from BT. It doesn t affect any additional contributions that you are able to pay, future pay reviews or overtime and bonus calculations. 2.5 How will Smart Pensions affect the BT employee share plans? Smart Pensions may reduce the maximum you can save each month under directshare. The maximum amount that you can use to buy shares is limited to the lower of: 1,500 per year or 10% of your taxable pay (before deducting pension contributions). As Smart Pensions reduces your taxable pay, this may reduce the maximum value of BT shares you can buy under directshare. This will potentially affect employees who invest the maximum of 1,500 and earn less than 15,957 per year, and others who are investing at, or near, their 10% limit. 2.6 How will mortgage providers take account of Smart Pensions? We would expect mortgage providers to be familiar with salary sacrifice arrangements and take account of your pay before any reduction for Smart Pensions for mortgage purposes. However, we suggest you check this point with your mortgage adviser. 2.7 What happens if I am seconded overseas? If you are seconded overseas and cease to be liable for UK income tax and National Insurance contributions, you will not be able to participate in Smart Pensions for that period and will be automatically removed from the arrangement. When you return to the UK and join one of the BT arrangements that use Smart Pensions, you will automatically start using Smart Pensions, unless you have previously elected not to participate. Page 8 of 11

9 3 State Benefits and HM Revenue & Customs 3.1 Can everyone use Smart Pensions? Everyone can use Smart Pensions but it may be unsuitable for a small number of employees who are paid below certain thresholds. National Living Wage (NLW) and National Minimum Wage (NMW) If your contractual pay, after reduction for salary sacrifice, will fall below the NLW (or NMW if you are under 25), you might not be able to participate in Smart Pensions. BTRSS members with earnings near to or less than the income tax personal allowance If your taxable earnings are below your income tax personal allowance, you will be better off by not participating in Smart Pensions. This is because: The reduction in your contractual pay for Smart Pensions is not adjusted for 20% basic rate tax relief; and you will no longer receive the 20% tax credit applied by Standard Life to your pension pot. 3.2 How does Smart Pensions impact on my State Benefits? Salary sacrifice lowers the earnings used for National Insurance contributions. This might affect some state benefits if you are paid at, or close to, the threshold at which National Insurance contributions are payable. That s because a lot of state benefits require you to pay a minimum level of National Insurance to qualify. Job Seekers allowance is one example, others being employment and support allowance, bereavement benefits and the maternity allowance. You could lose entitlement to certain State or Statutory benefits if your payments fall below this threshold. 3.3 Does Smart Pensions affect statutory sick, maternity, adoption, paternity or shared parental pay? If you are in receipt of any of these statutory benefits, and you are participating in Smart Pensions, BT pays a non-statutory top up to make sure you re not affected overall. 3.4 Will Smart Pensions affect the amount of State Pension I build up? The new State Pension is based on your National Insurance record and the number of qualifying years you complete. You pay National Insurance Contributions and get a qualifying year if you earn over 155 a week (from one employer). This equates to 8,060 each year. Provided your contractual pay each week (after reduction for Smart Pensions) is more than 155 then the amount of State Pension you build up will not be affected. (These amounts are for 2016/17.) 3.5 Will Smart Pensions affect my income tax position? No, there will be no change in your income tax position as your pension contributions are already exempt from income tax. However, if you are a BTRSS member and a higher or additional rate taxpayer, if you use Smart Pensions you will not have to claim your higher/additional rate tax relief for your pension contributions through your self-assessment tax return or PAYE tax coding. When you first use Smart Pensions you may need to tell HMRC to change your tax code so you do not pay too little tax going forward. Page 9 of 11

10 3.6 Will using Smart Pensions affect my pensions Annual Allowance? If you are a high earner, then you may be impacted by Annual Allowance Tapering if your total taxable income in a year is over 150,000. You ll find more information on the UK Pension Taxation pages on HR Home. One consideration is whether your threshold earnings are over 110,000. HMRC applies anti-avoidance rules so that if you start to use Smart Pensions, or make any changes to the amount you contribute (as a % of salary) using Smart Pensions, on or after 9 July 2015, HMRC may consider that you have started a new salary sacrifice arrangement. This means that any pension contributions made under Smart Pensions will need to be added back in when working out whether your earnings exceed the 110,000 threshold. 3.7 Does Smart Pensions impact on my entitlement to claim tax credits? No. Pension contributions are deducted when calculating income for a claim, whether they are paid using Smart Pensions or otherwise. 3.8 Will my Student Loan payments be affected? Student loan repayments are based on contractual pay (after reduction for Smart Pensions), so repayments could reduce or stop if you participate in Smart Pensions. 3.9 How does Smart Pensions impact on the Child Benefit Tax Charge? Smart Pensions does not affect whether you are liable for the Child Benefit Tax Charge because the charge is based on earnings after deducting pension contributions Haven t the Government changed the Rules on salary sacrifice arrangements? In the 2016 Autumn Statement, changes were made to the rules on salary sacrifice arrangements for certain benefits, however the Government have made clear that salary sacrifice pension arrangements are acceptable and may continue, along with cycle to work schemes, childcare and ultra-low emission vehicles. The rules could of course change in the future. 4 Further information 4.1 How do I get more information on Smart Pensions? More information on Smart Pensions can be found at Smart Pensions for BTPS and BTRSS members on HR Home. Page 10 of 11

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