4. What would you like in your pension pot? Note: higher rate tax payer Salary Sacrifice
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11. Arranging the sacrifice Example letter (on company headed paper) Dear With effect from dd/mm/yy your salary will reduce by £xx pa (from £yy pa to £zz pa). In return we will pay a pension contribution of £aa pa on your behalf. Please indicate your agreement to this reduction by signing both copies of this letter and returning one copy. For and on behalf of the company ……………….. I confirm my agreement ……………….. Date ……………….. (prior to the date shown above)
Hi, this is AEGON pensions technical services. We’re going to spend the next 5-10mins reminding ourselves about the most efficient - and tax effective way of getting your clients well-earned money into their pension pots. By starting this AV it means you’re serious about making sure you get the most from your clients pension saving. We’ve got a few ideas on why salary sacrifice makes sense, what good salary sacrifice looks like and how we can help - and we’re going to share these with you over the next few minutes.
Let’s start by quickly reviewing what salary sacrifice looks like? It’s a Formal agreement between employee and employer …where the Employee agrees unconditionally to give up future remuneration (salary or bonus) and the employer contributes to your pension in exchange for you having given up that future salary or bonus ….which is Evidenced by a formal exchange or notice of acceptance…. But why would we do this?
So…….in summary, salary sacrifice allows us to - … rework an employee’s remuneration……. At no additional cost to employee or employer …..In a more tax efficient manner that can generate higher pension contributions And no formal HMRC reporting…..is this something your clients should know about? tax relief on employer contribution under ‘wholly and exclusively’ rules no reporting to local IoT required (regardless of amount or type of scheme) can sacrifice a bonus until a “schedule E emolument” further guidance available at : http://www.hmrc.gov.uk/specialist/salary_sacrifice.htm Does it all sound too good to be true ? Take a look at the numbers on the next slide…..
What do you think your clients would answer? Would you like 86p in your pension pot, or £1.13 …….at the same cost to your client? …… lets go over a few simple numbers that establish the principles, that you can use in explaining the concepts to your clients and employers…..and we’ll show you how we got these numbers….
Let’s show you how we got these numbers….starting with a basic rate taxpayer…
… .and same principles appy to a higher rate taxpayer…it is more efficient to make the salary sacrifice and have the employer make the pension contribution. Would you like to see an example of one of our AEGON individual reports? Click on the screen and it’ll take you to an example report produced by the AEGON salary sacrifice tools…and then take you to the last couple of slides… … or
On this example we’re demonstrating how the ‘keep net income the same’ works………from Sept 08 (new tax allowances) -new ‘cash’ salary gross amount is reduced -Actual tax paid on reduced salary is less -Actual NIC paid on reduced salary is less…..this has an impact on actual cash salary, and by some clever maths we work out what we’d be able to ‘give-up’ as gross salary, but keep net income the same – with the difference being the company contribution….
I hope you’ll now have the confidence to go and discuss salary sacrifice with your clients. To help you further - we’ve put together a full package of support material – including salary sacrifice tools on our website… Have a look at our web-based tools – we challenge you to…… Good luck.
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