Salary Sacrifice (PensionExchange)
This page aims to answer any questions you have concerning the application of PensionExchange to your benefits.
This page is intended as a summary only and is subject to future changes implemented by the School, the USS, the Superannuation Arrangements of the University of London (“SAUL”) or as required by pensions or tax regulations.
The questions below deal with the application of PensionExchange to your pensionable salary and the benefits you receive.
- How does PensionExchange work?
- How will my salary be affected if I participate in PensionExchange?
- How do I participate in PensionExchange?
- Will my Pensionable Salary remain the same?
- Am I eligible to participate in PensionExchange?
- If I agree to participate in PensionExchange will it affect any other payments?
- What about Death in Service and Spouse's Pension?
- Will I still get the same pension at retirement?
- Will participation in PensionExchange affect my overtime?
- How will PensionExchange be shown on my payslip?
- Will PensionExchange affect the amount of tax relief I receive?
- Are there any circumstances where it may not be advantageous to participate?
- I am over the State retirement age and therefore do not pay National Insurance Contributions. Can I participate in PensionExchange?
- I pay National Insurance Contributions at the reduced married women's National Insurance Contributions rate. Will I benefit from National Insurance Contributions savings?
- Will PensionExchange affect Maternity Pay?
- What if I am asking for a reference for a mortgage or a loan?
- What happens to my pension if I leave USS/SAUL or the School?
- Will PensionExchange have an impact on my Tax Credits?
- What about State Pension benefits?
- Will PensionExchange have any impact on my payment to the Child Support Agency (CSA) (Child Maintenance Service from 2017)?
- Will my student loan repayments be affected?
- Do I have to do anything to participate in PensionExchange, e.g. sign forms?
- How do I opt-out of PensionExchange?
- What if I change my mind or my circumstances change?
- How long will the new arrangements last?
- Who do I ask if I have any additional questions?
- Should I be aware of other changes that may affect me?
PensionExchange means that you do not make employee pension contributions to the USS or SAUL.
Instead, the School pays an amount equal to your employee pension contributions plus the employer pension contributions you are entitled to. Your contractual gross salary will be reduced by the amount of your employee contributions to USS or SAUL. However, your benefits are still calculated using your full Pensionable Salary, before PensionExchange is taken into account.
As a result, your take home pay will increase because you are paying lower National Insurance Contributions (“NIC”). The School will also make NIC savings in the same way.
The overall level of contributions to USS or SAUL remains unchanged.
Pay increases; overtime etc. will not be affected and you will be able to quote your full Pensionable Salary (contractual Gross Salary) for all external purposes, for example, when quoting your salary for mortgage applications.
For those staff who are part of USS, the voluntary 1% match that you may pay into the USS Investment Builder is also included as part of PensionExchange. If you choose to pay more than 1%, under USS rules, this extra amount will not be included in PensionExchange. If you previously contributed to one of the former AVC arrangements you can still pay into the USS Investment Builder and continue paying to the former USS AVC arrangements.
PensionExchange operates on the basis that all normal contributions are paid by the School. This means that you do not pay employee pension contributions directly from your salary. Instead, your salary will be reduced by the amount of pension contributions that you pay into USS or SAUL. In exchange for this reduction in your salary, the School will make an equivalent additional employer contribution to USS or SAUL.
In the simple examples below, ‘Pre-Exchange Salary’ means your basic salary (contractual salary) before taking account of any PensionExchange adjustment. The term ‘Post-Exchange Salary’ refers to your basic salary after the PensionExchange adjustment.
Example 1 – SAUL member
Grade G6/AC1 point 29 £34,029 (31,076 + 2,953)
The example below highlights the Post-Exchange Salary position of an employee earning £34,029 per year and contributing £2,041.74 per year into SAUL (this being 6% of Pensionable Salary). Under PensionExchange, the employee’s Pre-Exchange Salary remains at £34,029 although the amount paid via payroll to take account of the salary exchange becomes £31,987.26 (Post-Exchange Salary).
|Less Pension Exchange||2,041.74|
|Less Income Tax||4,195.20|
|Net Take Home Pay||24,921.3|
As a consequence of PensionExchange, the employee’s net take-home pay will increase by £245.04 per annum (£20.42 per month) from £24,676.26 to £24,921.3. Total contributions to SAUL will remain the same.
[Note: Example based on 2016/17 tax and NIC rates and a standard tax code of 1100L. Net pay will depend on an individual’s personal tax code]
Example 2 – USS member
Grade G8/AC3 point 37 £38,666 (39,324 + 2,953)
The example below highlights the Post-Exchange Salary position of an employee earning £42,277 per year and contributing £3,382.16 per year into USS (this being 8% of Pensionable Salary).
|Less Pension Exchange||3,382.16|
|Less Income Tax||5,575.2|
|Net Take Home Pay||29,619.92|
As a consequence of PensionExchange, the employee’s net take-home pay will increase by £405.84 per annum (£33.82 per month) from £29,214.08 (Pre-Exchange Net Pay) to £29,619.92 (Post Exchange Net Pay). Total contributions to USS will remain the same.
[Note: Example based on 2016/17 tax and NIC rates and a standard tax code of 1100L. Net pay will depend on an individual’s personal tax code.]
Example 3 – USS member
Professor’s pay scale point 15 £68,373 (65,420 + 2,953)
The example below highlights the Post-Exchange Salary position of an employee earning £68,373 per year and contributing £5,469.84 per year into USS (this being 8% of Pensionable Salary).
|Less Pension Exchange||5,469.84|
|Less Income Tax||14,355.12|
|Net Take Home Pay||43,958.04|
As a consequence of PensionExchange, the employee’s net take-home pay will increase by £109.32 per annum (£9.11 per month) from £43,848.72 to £43,958.04. Total contributions to USS will remain the same.
[Note: Example based on 2016/17 tax and NIC rates and a standard tax code of 1100L. Net pay will depend on an individual’s personal tax code.]
If you are eligible to participate in PensionExchange you will automatically be included. If you are on a fixed term contract of less than two years you will not be automatically included in PensionExchange but you may still opt-in (see question 23).
If you do opt-in, you should note the restriction on refunds of contributions that will apply to you in the future if you leave/withdraw with less than two years’ qualifying pensionable service (see question 17).
Yes, your Pensionable Salary will continue to be calculated as at present i.e. based on your Pre-Exchange Salary.
If you are currently a member of USS or SAUL, you are eligible to participate in PensionExchange. You will not be able to participate in PensionExchange if it would bring your Post-Exchange Salary to below the National Minimum Wage or to below the threshold for the National Living Wage (please see question 12 for further information). We will monitor pay levels and advise you if you are likely to be affected, however if your circumstances change and you think you might fall into this category you should contact Marie Stacey, Pensions and Payroll Manager on extension 5042 or e-mail email@example.com.
Pay increases will continue to be based on your Pre-Exchange Salary. All of your salary related pay and benefits from the School e.g. overtime will also be calculated on your Pre-Exchange Salary. However Statutory Maternity Pay may be affected (see question 15).
These benefits are unchanged and will continue to be based on your Pensionable Salary, which is not affected by PensionExchange.
Yes. Your pension at retirement is based on your service in USS or SAUL and your full Pensionable Salary.
Overtime you may receive will not be affected by your participation in PensionExchange. Overtime will be calculated on your Pre-Exchange Salary, which will use the same hourly rate as before.
On your payslip there will be a Pay Element to show that you are participating in PensionExchange (displayed as USS Pens Ex or SAUL PenEx).
No, the amount of tax relief received will not be affected.
It will not be advantageous for you to participate if any of the following apply:
- Your earnings are close to the National Minimum Wage (see question 5);
- participation would prejudicially reduce the higher income level for employees over age 25 (known as the National Living Wage - see question 5);
- your earnings are close to the Primary Threshold for National Insurance Contributions (£8,060 for 2016/17);
- if you plan to leave USS or SAUL and get a refund of contributions (see questions 18 and 19).
If we think either of the first three categories applies to you, we will contact you separately. However, if you believe that you may fall into the fourth category, please contact Marie Stacey, Payroll and Pensions Manager, on extension 5042 or e-mail firstname.lastname@example.org.
13. I am over the State retirement age and therefore do not pay National Insurance Contributions. Can I participate in PensionExchange?
If you are over your specified State retirement age you will not pay National Insurance Contributions on your earnings and as a result you will not benefit from any National Insurance Contribution savings through participating in PensionExchange. You may still participate in PensionExchange, however, and will continue to be included in the arrangements unless you contact the Payroll Office to request an opt-out form, which will need to be signed and returned. You will neither be worse off nor better off through continuing to participate in PensionExchange.
14. I pay National Insurance Contributions at the reduced married women's National Insurance Contributions rate. Will I benefit from National Insurance Contributions savings?
If you pay National Insurance Contributions at the reduced rate for married women and widows (applicable to those employees who made this election prior to 12 May 1977), you pay National Insurance Contributions at a reduced rate of 5.85% (2016/7) (rather than 12%) on earnings for 2016/7 (£5,715 to £43,000).
You will still make National Insurance Contributions savings from participating in PensionExchange but your savings will be based on these rates rather than the amounts referred to elsewhere in this document. If you would like to discuss the potential level of National Insurance Contributions savings available to you in further detail, please contact Marie Stacey, Payroll and Pensions Manager on extension 5042 or email email@example.com.
The School provides occupational maternity pay (Occupational Maternity Pay) over and above Statutory Maternity Pay (SMP). Your eligibility for Occupational Maternity Pay and the level of Occupational Maternity Pay you will receive depends on your length of service and your terms and conditions of employment. Any Occupational Maternity Pay you are eligible to receive will be calculated based on your Pre-Exchange Salary, therefore you will be no worse off. Unless you apply to opt-out of PensionExchange under a lifestyle event (see paragraph 25), you will continue to exchange your salary, during any period you are in receipt of Occupational Maternity Pay. This is on the basis that this does not reduce your Post-Exchange Salary to below SMP.
We will advise lenders of the amount of your Pre-Exchange Salary.
If you leave the School and/or withdraw from USS/SAUL with two or more years’ qualifying service there will be no change. You will have the choice of a deferred pension and lump sum, or a transfer value to another pension arrangement.
If you leave with less than two years’ qualifying pensionable service you still have the alternative of choosing deferred benefits. However, you should be aware that your Pension Exchange contributions are treated as being paid by the School on your behalf, no refund of contributions will be due. In addition, if you transfer-in benefits from another pension arrangement, you will not be able to receive a refund, even if your service including the transfer-in is less than two years.
Participation in PensionExchange will not impact on any HM Revenue & Customs Tax Credits.
USS/SAUL were until 5 April 2016 contracted-out of the State earnings related pension scheme. With the introduction of the new state pension on 6 April 2016, both USS and SAUL ceased to be contracted-out. This means that from 1 April 2016 you will pay the full rate of National Insurance Contributions. Further information can be found on the gov.uk website for details of the new State pension arrangements.
20. Will PensionExchange have any impact on my payment to the Child Support Agency (CSA) (Child Maintenance Service from 2017)?
Child maintenance payments to the Child Maintenance Service are calculated with reference to your net income i.e. your pay after the deduction of pension contributions, tax and National Insurance Contributions. Under PensionExchange your net income increases because you are paying lower National Insurance Contributions and your child maintenance payments may therefore increase as a result.
If you decide to participate in PensionExchange you should notify the Child Maintenance Service of the change in your net income. Contact details for the Child Maintenance Service and further details can be obtained from their website at http://www.csa.gov.uk.
If you are repaying a student loan taken out with the Student Loans Company, your student loan repayments may be reduced slightly as a result of participating in PensionExchange. This is because your repayments are calculated based on your gross earnings, which will be reduced under PensionExchange by the salary exchange element.
If you are on a fixed term contract of two years’ or less, you will not be automatically included in PensionExchange but you can opt-in by completing the form here: https://www.soas.ac.uk/hr/forms/pensions/.
If you are on a fixed term contract of more than two years, or a permanent contact, then you will automatically be opted in to PensionExchange and do not need to take any action.
If you have been included in PensionExchange automatically then, unless you choose to opt-out of PensionExchange within 3 months of joining, we will determine that you have accepted the changes which will apply to your Terms and Conditions of employment and the way payment of contributions are deducted from your salary.
You can download an opt-out form here https://www.soas.ac.uk/hr/forms/pensions/ which should be completed and returned to the Payroll Office within three months’ of joining. If you choose to opt-out more than three months after joining, the opt-out will take effect from the forthcoming 1 April.
If you choose to opt-out of PensionExchange you will still be able to participate in USS/SAUL. However, you will not benefit from any National Insurance Contributions savings (as described earlier in this document).
If you decide to participate in PensionExchange you will not be able to opt-out until 1 April of each year unless you experience any of the following “lifestyle events” such as:
- Commencement of or return from maternity leave
- Commencement of or return from long term sickness
- Significant changes in working hours e.g. move from full-time to part-time
- Commencement of or return from sabbatical or unpaid leave
- Commencement of or return from an overseas secondment
- Moving from a fixed term contract to a permanent contract
- Withdrawing from USS or SAUL within three months of joining
In these cases you may, subject to the agreement of the School, opt-out of PensionExchange.
If you decide to opt-out of PensionExchange you will have the opportunity to review your decision and elect to participate in PensionExchange at a later date.
It is planned that PensionExchange will operate indefinitely. However, the School reserves the right to withdraw PensionExchange if, for example, Tax, National Insurance or Pension law or practice changes, or it is no longer viable for the School to operate PensionExchange.
If you have any additional questions please contact Marie Stacey Payroll and Pensions Manager, Ext 5042 or email firstname.lastname@example.org.
- Pension scheme tax allowance
The Lifetime Allowance restricts the total tax preferential benefits you can build up. The Annual Allowance restricts the amount of tax preferential benefits that can be built up in a year. Changes to lifetime and annual allowances were introduced on 6 April 2016. From this date the Lifetime Allowance is £1m. The current annual allowance is £40,000 a year but could be less for some members on higher earnings.
If you think you are affected by the changes in these allowances you should contact Marie Stacey Payroll and Pensions Manager (email@example.com) for further information.
- Treatment of AVCs in the USS
Members will have received information of the important changes being introduced with effect from 1 October 2016 in respect of USS’s Investment Builder AVC arrangement. If you currently pay AVCs you should already have received the information to enable you to confirm whether you wish to continue to pay additional contributions from 1 October 2016. Further information can be found here: https://www.uss.co.uk/members/members-home/maximising-your-pension.