Pension Salary Exchange: a win-win for employers and employees
Employers continue to face unprecedented challenges in attracting and retaining quality staff. The current economic climate and cost of living pressures mean that businesses, in many cases, don’t have spare funds to expand their staff reward package.
An option to consider to assist on this front is a Pension Salary Exchange (PSE) which can help businesses to save cash and provide their staff with a welcome net pay increase.
What is Pension Salary Exchange?
A form of salary sacrifice, PSE changes the way staff pension contributions are made. Essentially, the employee stops making personal pension contributions and reduces their salary to match that saving, whilst the employer increases its contributions to ensure the employee’s pension fund receives the same as before in total.
This produces National Insurance Contributions (NIC) savings for both employer and employee, subsequently creating a rare win-win situation of:
- Enhanced employee reward
- Savings for the business
A PSE explained further
Businesses can either retain their annual PSE savings or reinvest them (in full or part) to boost their staff benefits package. Private medical insurance, cash back plans, staff discount vouchers and death in service cover are all popular options.
Due to the amount of options, it can be difficult to decide which is best suited for you and your operations. However, our Employee Benefits specialists can help you to find the best solutions and assist with putting these in place.
The key benefit of PSE is that the cost of enhancing your staff rewards package can be in many cases entirely self-funded, helping the business to demonstrate its investment in its people for no actual extra cost. Annual savings can often be in the £10,000s, depending on employee numbers, salary levels and type of pension scheme.
PSE also provides a welcome increase in take home pay for your employees, again at no cost to the businesses. Each employee can save typically between £10 and £25 per month, depending on salary level and marginal NIC rate.
We are here to help
Our employer solutions team have significant experience of implementing pension salary exchange schemes, meaning we can assist with putting them into place efficiently, effectively and with minimal time and effort on your part.
We help you to:
- Communicate the introduction of PSE to your staff via formal staff presentations or webinars
- Prepare bespoke calculations and letters for each employee to confirm their personal PSE savings
- Ensure the payroll system is ready for the change and check all appropriate changes are made
- Provide ongoing support, as needed, including annual renewal calculations for your staff
If you have any questions in relation to pension salary exchanges or would like to discuss the implementation within your business, please get in touch with a member of our specialist team or your usual Azets advisor.
