Salary Exchange

Salary exchange (also known by H M Revenue & Customs as Salary Sacrifice) can be used for benefits such as childcare, bikes for work and mobile phones, but the greatest potential saving can be made in connection with pension contributions. It involves employees agreeing to take a reduced salary in return for a pension contribution.

In simple terms, this procedure could significantly boost the value of an employees’ pension fund without any additional cost, either to employer or employee because:

• Employees pay less tax and National Insurance
• The employer also receives a reduction to their National Insurance Contributions.

By using salary exchange these savings can be paid into an employees’ pension rather than to the Government.

The following diagram compares a regular monthly payment for a basic rate taxpayer made using the normal ‘Pension Relief At Source’ (PRAS) method and payments made using salary exchange.

In both examples the net cost to the employee is £100:



Paying pension contributions by salary exchange produces an extra £42.35 investment each month, again without additional cost to employer or employee.

Why BNH Employee Benefits?

BNH has in-depth knowledge and experience of dealing with salary exchange and has the capability to provide the technical assistance for integration with your existing systems together with the vitally important communications to employees.

We would be pleased to demonstrate how such a scheme operates and how it could provide enhanced pension benefits for employees.

Using Salary Exchange to fund Flexible Benefits

For employers who are considering implementing a flexible benefits programme, salary exchange can be used to fund the implementation, design and ongoing costs.