Salary Sacrifice Contributions

Introduction

Salary sacrifice is a widely used method for pension contributions that allows employees to exchange part of their gross salary for employer pension contributions. This arrangement can offer tax and National Insurance savings for both the employee and employer. Advisers play a key role in ensuring contributions are set up correctly and in line with scheme rules.

This article outlines the types of salary sacrifice contributions that the SS&C SIPP can and cannot accept, helping advisers support employers and clients effectively.

Acceptable Contribution Method

Net Pay Arrangement

Under the Net Pay method:

• The employee agrees to reduce their gross salary by a chosen amount.
• The employer then contributes this amount directly into the pension scheme on the employee’s behalf.
• Because the contribution is made from gross pay, the employee receives full tax relief at their marginal rate automatically through payroll.
• The pension scheme receives the employer’s gross contribution (i.e. before tax), and no further tax relief is claimed by the scheme.

Adviser Notes:

• Contributions should be processed as employer gross contributions.
• The full amount should be remitted to the pension provider gross.

Unacceptable Contribution Method

Relief at Source (RAS) Method

Under the Relief at Source method:

• Contributions are deducted from the employee’s net salary (after tax).
• Only 80% of the intended contribution is paid into the pension scheme.
• The scheme then claims the remaining 20% basic rate tax relief from HMRC.
• Higher and additional rate taxpayers must claim further relief via self-assessment.

Why This May Not Be Accepted:

• We only accept Gross Employer Contributions, not net of tax.