Pension planning through salary exchange

June 9th 2008

Many of you will be aware of the advantages of planning for retirement through a personal pension, but there are increased benefits available by contributing to a personal pension plan via Salary Exchange.

The key benefits of salary exchange are:

• The employer can contribute its national insurance saving into the arrangement
• The employer’s National Insurance refund is 12.8% of salary
• The employee can also invest their national insurance saving into the scheme.
• For incomes of up to £770 per week, the employee National Insurance rate is 11.00 (1% thereafter).
• No income tax is levied against the exchanged amount, which is therefore invested in full

Here’s an example - an individual earning £20,000 per annum and contributing £200 each month could achieve an additional £61.56 per month in their pension pot compared to the traditional route of contributing. Over a forty year term this could generate an additional fund of £108,000 compared to the traditional route (assuming 7% return on investment with salary increases in line with national average earnings).

Setting up an individual or group arrangement does take a little more paperwork and should only be undertaken with the guidance of professional advice.

If you would like to find out more about salary exchange, please contact Mark Chandler at Prosperis on 0113 287 8231.