When not to use Salary Sacrifice

Your National Insurance (NI) contributions are important; they provide you with entitlement to many state benefits. Some state benefits disappear altogether if you do not pay NI, some are reduced. The following groups of pension member should take particular care before paying contributions under Salary Sacrifice.

State Second Pension losses for members. Reduced Salary for NI purposes results in lower State Second Pension at retirement.	Does not affect those people earning above the Upper Earnings Limit (£40,040). Does not affect you if you are a member of Section 2 and 3 of the O2 Pension Plan as Contracted Out of the State Second Pension. For Section 1 members, the Salary Sacrifice option in the Flex option page is pre-selected to reflect those who we are advised will ‘win’ and ‘lose’ under Salary Sacrifice. By win, we mean that the State Second Pension forgone is more than compensated for by NI saving for most members. Details of this pre-selection can be sought from the pensions centre but there is a summary later on this page.
State Benefit losses for members. NI history is used to calculate certain benefits such as Statutory Sick Pay, Incapacity Benefit and Job Seekers allowance. A reduced NI record leads to inability to claim benefits in the future.	This affects those pension Plan members with salary which, following Salary Sacrifice, will be reduced below the NI limit of £5,460. For Section 1 members, the Salary Sacrifice option in the Flex option page is pre-selected to reflect those the Company are advised will 'win' and 'lose' under Salary Sacrifice.
Breach of Minimum Wage For plan members with earnings close to the minimum wage, Salary Sacrifice may take their earnings below the minimum wage.	This category of member will not be able to benefit from Salary Sacrifice; the system will not let you make a benefit choice that will reduce your income to this level.

Help from the flexible benefits joining page

The enrolment page in flexible benefits goes a step further and will actually have pre-populated Salary Sacrifice for you if, under the advice that the company received from independent experts, you are someone who will broadly benefit from Salary Sacrifice. However, it is your responsibility to read and understand what you are signing up to and to make the right choice for you. Accordingly you have the option to select or unselect this should you choose.

The pre-populations works as below:

Section 1 members – will be pre-selected into Salary Sacrifice unless earning less than £6,000 per annum or between £30,000 to £40,000 and aged over 50.
Section 2 and Section 3 members – will be pre-selected into Salary Sacrifice unless earning less than £6,000 per annum.

Salary Sacrifice impact on other benefits such as bonus

Salary Sacrifice does not affect your salary figure used for any other calculations – for example any disclosure by O2 at your request for a mortgage application or in the calculation of any of your pay elements, such as bonus, where applicable. It will also not impact on the calculation of any pension benefits apart from refunds on leaving the Plan early (see below).

Salary Sacrifice for early leavers

One more consideration: when you make pension contributions on a Salary Sacrifice basis they do not count towards the early leavers’ refund. So if you leave within three months of joining the Plan, you will receive no benefits. If you leave after three months but before you have completed two years in the Plan, you will need to transfer your pension to one of the many available alternatives (your new employer or an insurance company). We strongly recommend that you do this in order to maintain your retirement savings and also to ensure that your contributions are not lost.