Fidante Benefits Package

Salary Exchange

Salary Exchange (sometimes known as Salary Sacrifice) is not a different Pension – it is simply a more tax efficient way to pay your personal contributions towards the Fidante Workplace Pension.

By paying your future Pension contributions using Salary Exchange, the value of those contributions will remain the same - but your monthly take home pay will increase.

What is Salary Exchange and how does it work? Salary Exchange is simply a different, more tax efficient way of paying personal pension contributions. Instead of paying your contributions from net salary (the conventional method), your salary is reduced by the amount of your gross pension contribution. This amount is then paid into your pension as an additional company contribution.

This results in the following benefits:

1. You pay less National Insurance personally and consequently, your monthly take home pay increases. 2. If you are a higher rate tax-payer, you will see immediate tax relief at the full rate (no requirement to separately claim back the additional relief owed).

Basic Rate Tax Payer Conventional contribution method (non-Salary Exchange)

As an example, under the conventional (non-salary Exchange) method, for an employee earning £40,000 a year who contributes 5% of their basic salary to their pension, this amounts to £2,000 a year. After basic rate tax relief is applied, the net annual cost to them is £1,600. In addition, they pay 8% in National Insurance (£160) on the £2,000 which cannot be reclaimed.

Using Salary Exchange

Taking the same basic rate tax payer, their gross salary is reduced by £2,000 (5% of basic salary). However, as the amount exchanged is no longer subject to income tax (20%) or National Insurance (8%), the net annual cost is £1,440 (giving the employee an extra £16 0 ‘in their pocket’ when compared to the conventional method of payment).

Higher Rate Tax Payer

Conventional contribution method (non-Salary Exchange)

For a higher rate taxpayer earning £100,000, assuming they also contribute 5% of their basic salary into the Pension, this amounts to £5,000. Initially they would make a net contribution of £4,000 and they would be entitled to a further £1,000 in tax relief (obtained through their Self-Assessment or direct letter to HMRC - no additional tax relief is provided unless it is positively claimed). In addition, they would pay 2% in National Insurance (£100) on the £5,000 which cannot be re-claimed.

Using Salary Exchange

Taking the same higher rate tax payer, their gross salary is reduced by £5,000 (5% of basic salary). As the amount exchanged is no longer subject to income tax (40%) or National Insurance (2%), the net cost is £2,900. When compared to the conventional method, this gives the employee an extra £1,100 ‘in their pocket’ if they have not previously been claiming higher rate tax relief, or £100 if they have.

22