Introduce Workplace Pension Salary Exchange and save an average of £7,015 p/a

Introduce Workplace Pension Salary Exchange and save an average of £7,015 p/a

Auto Enrolment has ushered in a new era of workplace-based saving. In our view it’s been a resounding success – boosting both the number of people engaging in long term savings and the average amount of annual saving per employee. Throw in a dramatic increase in employer participation and improved pension awareness nationally and the results really are quite stunning.

At Ink, we believe employers need to keep supporting workplace pensions and should not settle for simple minimum compliance. In our recent White Paper: Investing in Pensions; Investing in People we give a clarion call to employers. In particular, to those new to workplace pensions, to see beyond the baseline and commit to investing in good quality schemes to improve employee engagement and productivity.

Time to consider salary exchange?

One such enhancement could be salary exchange.

With most employee contributions increasing in April 2019 to 5% of pensionable earnings, an opportunity to take advantage of Workplace Pension Salary Exchange is coming into view for many employers.

Put simply, employers can save 13.8% of the annualised employee pension contributions made by their scheme members by putting in place salary exchange.

For example, if a firm with 25 staff had average employee pension contributions of £100 per month, the total contribution would £30,000 per annum. The potential Class 1A Employer’s NIC saving could be £30,000 x 13.8% = £4,140.

That’s £4,140 per annum off the bottom line…every year.

Employers we work with tend to do one of the following with their NIC savings:

  • Retain them in the business
  • Use them to enhance employee pension contributions
  • Use them to fund other benefits


Why now?

Clearly, with NIC savings being based on the aggregate employee contributions, the starting amounts of 1% of earnings pre-2018 were not likely to be sufficient to get anyone excited, however with a five-fold increase in employee contributions, salary exchange should be firmly on the radar in our view.


The negatives?

For Employers – clearly for smaller businesses with lower potential NIC savings, the ends must justify the means – there are some costs to put this arrangement in place and your payroll function needs to be fully engaged to get it right.

For Employees – lower paid workers and part time workers tend to be unsuitable for salary exchange, but they can be easily identified and excluded. Also, reductions in gross pay could have a knock-on effect on employment related items like death in service scheme benefits and ‘salary for mortgage’ verifications, however these can be easily mitigated. What can’t be removed is the possible impact on State earnings related benefits like Statutory Maternity Pay.


Is it suitable for my business?

There are some simple tests that can be applied. We think that annual total employee pension contributions of at least £7,500 per annum are required to make it financially worthwhile.

Taking an average wage of £25,000 that’s probably the equivalent of about 5 full time employees paying into a pension, so it’s by no means a ‘big company’ thing.

Too many part-time employees, or too many employees close to the National Living Wage will probably also rule out salary exchange, but for everyone else its worth a closer look.


Interested in generating savings from your Workplace Pension scheme?

If you are interested in exploring the benefits of Salary Exchange then please contact either Billy Johnson ( or Angela Ward ( or call the office on 01858 810200.

To download a copy of our White Paper: Investing in Pensions’ Investing in People click here

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