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.
Because the salary is being exchanged rather than paid directly, both employer and employee pay less in National Insurance contributions.
Salary Exchange is available on our new and existing Group Pension Plan and Group Stakeholder Pension schemes.
The employee opts-in to the Salary Exchange agreement. This involves an amendment to their terms and conditions of employment.
The employee will choose an amount of money to exchange and their gross salary is then reduced by this amount.
- For example, if an employee earns £25,000 each year and chooses to exchange £2,500, their salary would become £22,500. The exchanged amount is then paid direct to their pension plan as an employer contribution.
Clear communication is essential if a salary exchange arrangement is to be successful. To help, we’ve produced literature for employers and employees on how salary exchange works and how it can impact and benefit them.
Our innovative Salary Exchange calculator is a great tool to demonstrate how salary exchange works and provides a variety of individual and bulk calculations and outputs. Just ask your Scottish Widows Account Manager for a copy of the calculator.
Rather than gaining approval from each employee to opt-in to salary exchange, smart pension schemes instead rely on employees who don’t wish to participate to opt-out.
Download our smart pension schemes adviser guide.
We’ve developed a Salary Exchange calculator, designed to save you time, which can be used for face-to-face advice sessions and communication with employers and employees.
It demonstrates the benefits for group pension schemes (both traditional salary exchange schemes and smart pension schemes) by
- Offering bulk calculation functionality
- Uploading scheme data
- Providing a scheme-specific output that you can use with employers and employees
- Running individual calculations
- Generating letters based on the data you have input
We’ve recently enhanced the tool so that it now offers the ability to keep take-home pay at the same level, further increasing the pension contribution for the employee and new sample communications for smart pension schemes.
Download our Salary Exchange calculator.
Download a demo of our Salary Exchange calculator.
