Your guide to salary exchange

Increase your net take home pay

Your guide to salary exchange 01/04
Salary exchange a tax efficient way to boost
your plans for the future
With salary exchange you could have the chance to increase your
net take home pay while the payments into your pension stay at
exactly the same level.
Salary exchange allows you to give up an amount of your gross
(before tax) salary. Your employer then pays that amount straight
into your pension plan on your behalf. So if you exchange 1,250 of
your salary, your employer pays 1,250 into your pension.
As youre exchanging a portion of your gross salary, you wont
pay Income Tax or National Insurance Contributions (NICs) on that
amount. How much you save depends on how much you currently
earn and how much you reduce your monthly pay.
Your employer may make NIC savings and choose to pay a
proportion of this saving into your pension plan, giving your
payments a further boost.
02/04 Your guide to salary exchange
How salary exchange works and how you
could benefit
Pay exactly the same amount into your pension plan and
increase your net take home pay as youll be paying reduced NICs
Lets assume your current salary is 25,000 each year and you
pay 5% of your salary to a personal pension 1,250. However,
instead of paying your 1,250 pension payment you exchange
1,250 of your gross salary.
For tax year 2013/14
Your net take home pay goes up, in this example, by 150, as you
pay less tax and NICs on your reduced salary.
These figures are for illustration only. All figures are based on
annual tax allowances, NIC threshold limits and a single persons tax
allowance for the tax year 2013/14. These may be affected by future
changes in tax, National Insurance Contributions, and legislation or
by an individuals particular circumstance.
Before exchange
Basic salary 25,000
Deductions
Tax
NIC
Pension
3,112
2,069
1,000
(paid from salary after deductions)
Net take home pay 18,819
Gross pension payment 1,250
(1,000 pension payment from salary after deductions +
20% relief of 250)
After exchange
Basic salary 23,750
(25,000 salary 1,250 pension payment at source)
Deductions
Tax
NIC
Pension
2,862
1,919
0
(pension payment already deducted by employer at source)
Net take home pay 18,969
Gross pension payment 1,250
(plus any employer NIC saving reinvested into your pension)
Your guide to salary exchange 03/04
Other things you should consider include:
A reduction in your taxable salary may reduce your entitlement
to certain state benefits, such as tax credits, statutory sick pay,
maternity pay and the second state pension, as these are linked
to your total gross earnings.
Due to a change in your taxable salary, other company benefits
and the amount you can borrow may be affected.
There are no NIC savings if you earn less than the earnings
threshold, as there are no NICs to pay on earnings below this level.
Salary exchange is not suitable if your salary is reduced below
the national minimum wage as a result of joining.
Your employer may limit the number of times you can make
changes and these changes may incur a charge.
Salary exchange should not reduce your salary to the lower
earnings limit, as you would not accrue any basic state pension
for that year.
Laws and tax rules may change in the future. The information
here is based on our understanding in July 2013. Your personal
circumstances also have an impact on tax treatment.
Salary exchange: the benefits
You can use it to boost your net take home pay, while payments
to your pension stay the same.
If you earn less than the upper earnings limit, you could save
12% National Insurance on the amount you exchange.
You can exchange a portion of your salary that would ordinarily
be taxed into pension payments that are not taxed.
Your company pension is already a tax efficient way to save
for your retirement with salary exchange you can boost your
payments and benefit even more from the tax relief.
Higher and additional-rate taxpayers receive higher-rate tax
relief immediately on a personal pension rather than claiming
the further tax relief separately.
04/04
Win-Win
Salary exchange provides a simple way to boost
your pension and makes your money work harder
as you benefit from valuable tax advantages.
Its easy to arrange. Speak to your employer for
further information.
If youre not sure whether salary exchange is right for
you, you should speak to your employer or a financial
adviser. There may be a cost associated to seeking
advice from a financial adviser.
GEN753AA5 0813 2013 Standard Life
Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life
House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is
authorised by the Prudential Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. www.standardlife.co.uk
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