Salary exchange is the tax-efficient way to arrange your pension contributions. The small change in the way you pay into your employees’ pensions means you will save money on your National Insurance contributions (as will your staff). Many companies choose to keep the money they save, sometimes to invest in other wellbeing initiatives or rewards for the team. But some employers choose to share some or all of these National Insurance savings directly with their employees.
This is not obligatory; rather, it's something you could consider doing as part of your employee benefits package.
What does sharing the savings mean?
When your employees agree to take part in salary exchange, you will save on National Insurance contributions. If you share these savings with your employees, you or your accountant will add the extra money to their pension accounts. You can choose to share all (100%) of the savings, or just a portion.
Why should I share the savings?
When you share your savings with your employees, you are adding more money to their pensions. This will mean they end up with a bigger retirement pot when it comes to the end of their career, so they will have a better standard of living in their older age. This is a big benefit for your team.
On the other hand, you may decide to use the National Insurance savings to buy other rewards or benefits for your team that they can use and appreciate now, rather than waiting for retirement. However, when this money is invested in a pension, it will grow significantly over time. Although it’s a deferred benefit, it may ultimately be more valuable if you put it directly into the pension.
If I share my savings, what impact will this have?
On their Maji app, your team will see you are choosing to share your savings with them. The amount of extra money going into their pot will be shown, and employees can see what difference this will make to their long term savings.