Salary sacrifice is an optional agreement between an employee and their employer to reduce the employee’s entitlement to cash payin return for some form of non-cash benefit, such as employer pension contributions.
When an employee chooses to ‘sacrifice’ some of their gross salary, it reduces their income tax and NICs, and therefore as an employer, you also save on NICs.
Salary sacrifice can be financially beneficial for employees because it reduces their taxable income. Consequently, the amount of income tax they pay is reduced. In addition, both the employee and employer may pay lower National Insurance contributions.
Employers’ contributions to a pension scheme are classified as a business expense as opposed to profit, therefore they do not have to pay tax on their contributions.
When an employee contributes to their pension scheme, their contributions are taken from their salary before tax is deducted until they reach their annual allowance of £40,000 per fiscal year.
Auto-enrolment is a government initiative that requires all employers to automatically enrol eligible workers into a workplace pension scheme and contribute to the pension scheme.
Re-enrolment occurs every three years.It is an employer’sresponsibility to put certain staff who have opted out of their pension scheme back into itto ensure employees are given regular opportunities to re-join the pensions scheme.
Certification is a process whereby employers determine whether their money purchase scheme or the money purchase element of their hybrid scheme(s) satisfies the relevant or alternative quality requirements.
Certification is necessary to ensure that the pension scheme meets certain minimum standards set by the government. This includes ensuring that the total amount of contributions or the benefits provided by the scheme meet certain minimum levels.
The employer is responsible for certifying their workplace pension scheme. However, they may choose to get help from a professional adviser to do this. Certification needs to be done at least once every 18 months, but it can be done more frequently if the employer chooses.
If a scheme fails certification, it means it does not meet the minimum requirements. The employer will then need to amend the scheme or choose a different scheme that does meet the requirements.
If an employee is considered to be in ill health, they may be able to take their pension benefits early, irrespective of your age. We will consider any cases in which members are unable to carry out the role or function that they were hired to do, whether that be due to injury or illness. The Sensitive Claims process can be subjective as we asses claims on a case-by-case basis. There are two categories of ill health: serious illness, and ill health.
The difference between serious illness and ill health lies in the severity of the health condition. Serious illness usually constitutes a member being diagnosed with having less than 12 months to live. In these incidences, we would pay out the member’s full pot as a tax-free lump sum following a ‘Doctors Declaration’ to be completed by a General Medical Council professional with a GMC Reference Number.
Ill health refers to members under the retirement age, unable to carry out their current role. All retirement options become available to them, subject to the usual tax regulations. We would require a ‘lighter’ version of the ‘Doctors Declaration’ to be completed.
Safeguarded benefits are certain types of benefits in pension schemes that come with specific protections. These can include guaranteed annuity rates, guaranteed minimum pensions, or pensions with a promised level of income.
If you’re considering transferring out of a pension scheme and you have safeguarded benefits worth more than £30,000, you’re legally required to take financial advice before you can proceed with the transfer. This advice is designed to ensure you fully understand the implications of giving up your safeguarded benefits which often have valuable features that might not be matched if you transfer.
A Contribution Report provides details of the contributions made to the pension scheme. This can include the total contributions made by the employer and employees, as well as any tax relief received.
A Membership Report provides details of the scheme members. This can include the number of active members, deferred members, and pensioner members. It can also provide details of any new members who have joined the scheme and any members who have left.
An Investment Performance Report provides details of how the pension scheme’s investments have performed. This can include details of the returns achieved by different investment funds and any changes to the investment strategy.
The frequency of these reports can vary, but they are typically provided on a monthly or quarterly basis. Some reports may also be provided on an annual basis.
Yes, UK pension savings can be transferred to a overseas pensions scheme, however, the overseas scheme must be a ‘qualifying recognised overseas pension scheme’ (QROPS).
A QROPS is an overseas pension scheme that meets certain requirements set by HMRC. QROPS can received transfers of UK pensions savings without incurring an unauthorised payment and scheme sanction charge.
Whether tax is due depends on where the QROPS you transfer is based. Tax is not usually due if transferring to a QROPS provided by an existing employer. However, 25% tax may be due if an individual lives outside the UK, Gibraltar or the EEA or move to live outside these areas within 5 years.
Within a defined contribution pension scheme, contributions is put into investments by the pension provider. The value of the pension pot can increase or decrease depending on how the investments perform.
Flexi-Access Drawdown (FAD) allows the policyholder to take their tax-free cash allowance, and either leave the rest invested or set up regular payments that will continue until there is no money left in the pot.
