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Salary Sacrifice
Most people know that you do not pay tax on contributions you make to a pension scheme like The O2 Pension Plan. However, not all schemes enable you to save National Insurance (NI) on the contributions you make – the O2 Pension Plan does and it is called Salary Sacrifice.
Salary Sacrifice is the name given to the special arrangement whereby you save the NI on the cost of making payments to your pension. Under Salary Sacrifice, O2 instead makes payments on your behalf and therefore the payment is not assessed against you for NI. It's called Salary Sacrifice because although O2 pays for the benefit on your behalf, you literally have to give up, i.e. sacrifice, that much of your salary in return.
How much you save in National Insurance under Salary Sacrifice depends on your earnings and to which section of the O2 Pension Plan you belong. The table below illustrates what you save by paying contributions under Salary Sacrifice – don't be misled by the two columns; you pay different rates of NI depending on which section of the Plan you belong to, so your NI saving is different.
| Saving in the cost of your pension contributions by paying for them by Salary Sacrifice | ||
|---|---|---|
| Salary | Section 1 Pension Plan member | Section 2 or 3 Pension Plan member |
| £0 - £5,460 | Nil | Nil |
| £5,460 - £40,040 | 11% | 9.4% |
| £40,040 and above | 1% | 1% |
Over the course of a few years this can lead to considerable savings so it's no surprise that paying pension contributions through Salary Sacrifice has become very popular.
Using Salary Sacrifice
Salary Sacrifice is accessible through flexible benefits at www.O2Rewards.com. On joining the Plan, you will have the option to make your contributions on a Salary Sacrifice basis. You will find that the Salary Sacrifice option box is pre-selected if, according to the advice the company has received, you would broadly benefit from Salary Sacrifice. You can opt out of Salary Sacrifice through the flexible benefits pages of www.O2Rewards.com
For those members who were pension members at 1 July 2007, unless you chose otherwise at flexible benefits enrolment, you may have been placed into Salary Sacrifice on the basis of the advice the company received. You should check your pension statement at www.O2Rewards.com
