It's a simple, tax efficient way to save into a pension scheme, and offers benefits to employers and their employees.
It's an agreement between an employer, and their employees, where the employee agrees to exchange part of their salary, bonus or even redundancy package for an increased employer pension contribution.
It works in the same way as other salary related benefit schemes, for example company car, cycle to work and childcare vouchers schemes, and it can be easy to set up.
No one knows what the future holds. If any of your clients find they need to reduce their staff levels they can offer their employees the option to exchange part of their redundancy package too.
The amount an employer can save will depend on the size of their workplace pension scheme, and the value of salary exchanged.
The examples below show how much NI contributions can be saved by introducing salary exchange and keeping all of the savings.
|Number of pension scheme members||50||100||500|
|Total yearly salary payment before exchange||£1,500,000||£3,000,000||£15,000,000|
|Total salary exchanged by employees (5%)||£75,000||£150,000||£750,000|
|Employer NIC rate (2022/23)||x 15.05%|
|Employers annual NIC saving*||£11,287||£22,575||£112,875|
*Figures are based on an average salary of £30,000 per employee, each exchanging 5% of their salary for a pension contribution. Employer yearly savings are the NI contributions that would be paid without salary exchange in place.
You can use our salary exchange calculator to produce statements, detailing total savings, pension contributions and take-home pay at employee level.
We’ve produced a suite of materials to help you engage with employers and help them understand the long-term benefits of salary exchange. These include:
We can also produce group level calculations to help demonstrate employer level savings. Speak to your usual Royal London contact.
If you’d like more information speak to your usual Royal London contact.