Corporate Pensions - Employer and trustees - Salary Exchange

What is Salary Exchange?

Salary Exchange is an agreement between an employee and their employer. The employee agrees to exchange part of their gross (before tax) salary in return for a non-cash benefit, like a pension contribution.

As the salary is being exchanged rather than paid directly, both the employer and the employee pay less National Insurance contributions.

How does it work?

Each scheme can be tailored to meet the needs of the employer and the employee, however, the simplest explanation is:

The employee opts-in to salary exchange and an exchange amount is agreed between the employer and the employee.
The employee’s salary is reduced by the exchanged amount and this is paid direct to the employee’s pension plan as an employer contribution.

What about Smart Pension schemes?

Rather than gaining approval from each employee to opt-in to salary exchange, Smart Pension schemes instead rely on employees who do not wish to participate to opt-out.

Some of the Key benefits of Salary Exchange

Employers pay less National Insurance Contributions
Increased pension for employees
Increased take-home pay for employees
Adding true value to the benefits package, particularly if you decide to reinvest some or all of your NIC saving.

Salary Exchange calculator

We’ve developed a Salary Exchange calculator which you can request through your financial adviser or your Scottish Widows Account Manager.

The calculator can perform bulk calculations, so it’s ideal for the corporate pensions market. You can upload scheme data and it will provide you with a scheme specific output.

Download demo of our Salary Exchange calculator (exe 4.77 MB)