Slaughter and May - Salary Sacrifice Video
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Transcript
Welcome to this short explainer video on salary sacrifice with the Slaughter and My Retirement Savings Scheme. Salary sacrifice is a method that allows most people to save into their pension account in a national insurance efficient way. With this method, you exchange part of your salary in return for benefits from your employer. Your salary is reduced by your pension contribution amount, and this amount is then paid into your pension account as an employer, pension contribution.
As your salary has been reduced, you will pay lower national insurance contributions subject to certain limits, resulting in an increase to your take home pay. Slaughter and May will also make a National Insurance saving and will add 50% of this to their regular monthly contribution amount, meaning a greater monthly amount is invested for you compared to non-salary sacrifice payment methods.
Let's take a look at a couple of examples.
This example is for a member aged 40 to 49 earning £24,000, making a 5% employee contribution, and receiving a 13% Slaughter and May contribution. Firstly, please focus on the non-Salary Sacrifice column. The monthly salary is £2,000 and the employee contribution is £100 before tax. For this 5% employee contribution, Slaughter and May will make a contribution of 13%, which is £260.
So, for what's costing you less than £100, £360 is invested in your pension account on a monthly basis. Please make a note of the tax, National Insurance, and take-home pay.
Now let's focus on the Salary sacrifice column. The £100 employee contribution is deducted from your salary and paid into your pension account as an employer contribution. This will mean that you are not making an employee pension contribution. You can see that your new monthly salary is £1,900 and there is a zero in the employee contribution row.
Because your salary is lower you pay less National insurance, meaning your take home pay increases in this example, by £13.25. Slaughter and May will also pay 50% of their National Insurance saving and in this example, that's an additional £7.53. So, in the Salary Sacrifice example, what's costing you less than £100 means a total of £367.53 is invested on a monthly basis.
This next slide shows an example of a higher rate taxpayer.
In this example, the individual will have an increase to their take home pay of £9.75, and with the National Insurance saving from Slaughter and May £22.50 extra invested in their pension account. The following slides detail how these examples would look on your payslip.
This is an example payslip for an individual earning £24,000 without Salary Sacrifice, the 5% pension contribution is shown as a deduction.
Now let's see how this would compare. If the 5% contribution was made through Salary Sacrifice, a 5% contribution that is reduced from your salary is now in the pay and allowances column and the increase in take home pay can be seen here.
Payslip for an individual earning £72,000 without Salary Sacrifice, the 5% pension contribution is shown as a deduction. Now let's see how this would compare. If the 5% contribution was made through salary sacrifice. The 5% contribution that is reduced from your salary is now in the pay and allowances column and the increase in take home pay can be seen here.
Now for some useful and important information, Slaughter and May will carry out some checks. For instance, they will recommend you do not take part if your salary is below the National Insurance Primary threshold. The Salary Sacrifice scheme is a voluntary arrangement, so you can choose not to participate. If you do not wish to participate from the start you should complete a non-participation form which can be found using the link on the screen.
Slaughter and May will limit the amount of salary that can be sacrificed to 25%. If members want to contribute more, this will be outside of the salary sacrifice scheme.
For further information on salary sacrifice, please type the links on the screen into your browser. Thank you for listening.