Salary Sacrifice Pension contributions via Umbrella employment explained

Salary Sacrifice

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash remuneration in return for a non-cash benefit by agreeing to a variation to an employee’s terms and conditions of employment. In this instance, you would be reducing your income in return for an increase in employer pension contributions.

Many employees request a salary sacrifice in return for an increase in employer’s pension contributions as a way to save, as well as to lower their pay to reduce their income tax and national insurance contributions.

You are unable to change the details of the agreement once payments have commenced, unless you have a significant lifestyle change such as marriage, divorce, or your spouse or partner becoming redundant or pregnant then this option can be discussed.

Salary Sacrifice FAQs

Although there are advantages to a salary sacrifice, there may also be some disadvantages as result of lowering your income. We recommend that you consider any impacts that a salary sacrifice may have to your own personal circumstances before committing to a reduction in pay.

Can ADVANCE offer pension advice?

We cannot offer you any advice on your pension or your personal financial circumstances and any investment options which may be open to you as we are not pension or financial advisors. We recommend that you speak with your pension provider or an independent financial advisor.

Setting up a salary sacrifice arrangement with ADVANCE in return for an increase in employer pension contributions;

How much salary can I sacrifice?

We must ensure that we pay you at least the national living wage (or if you are under 23 at least the national minimum wage) and holiday pay. At set up, we will complete a payment illustration with you, and will confirm the maximum amount of gross additional pay that you can sacrifice, based upon your standard working week. You can then request to sacrifice an amount at or below this value in return for an increase in employer pension contributions.

What if my standard working week changes?

You will be sacrificing your additional pay up to an agreed amount. This means that, although the amount of additional pay that ADVANCE contribute towards your pension plan cannot exceed the total amount that you have sacrificed, if your hours/days worked and/or your contracting rate decreases, then your sacrificed amount of additional pay may decrease accordingly.

What is the annual allowance cap?

The annual allowance cap is the total amount that can be contributed towards your pension each year before you have to pay tax. The current annual allowance is capped at ￡40,000 and applies across all of the pension schemes that you belong to, not just your one through ADVANCE.

What happens if I exceed the annual allowance cap?

If your total contributions for the year exceed the annual allowance, then you will be subject to an additional tax bill on anything contributed above the cap. You may also face an annual allowance charge which is added to the rest of your taxable income for the year.

Could my annual allowance be reduced?

Yes. If your annual adjusted income in a tax year is above ￡240,000 your annual allowance may be reduced. If you think that your adjusted earnings in a tax year may exceed this, we recommend that you speak to your pension or financial advisor to discuss your options.

What criteria will my chosen pension provider have to meet?

You will need to ensure that your chosen pension provider is able to accept gross employer contributions from ADVANCE, as well as ad-hoc payments, as opposed to payments made via mandated direct debit. ADVANCE cannot support gross employer payments made by mandated direct debit, due to the infrequent nature of your temporary assignments.

Your chosen pension provider’s pension scheme must also be registered with HMRC. Each registered pension scheme should have a Pension Scheme Tax Reference (PSTR). An example reference number is 12345678RL. It usually has 10 characters, made up of 8 numbers, followed by 2 letters.

How do I set up a salary sacrifice arrangement with ADVANCE?

The first step is for you to speak with your pension provider to ensure that they meet the above criteria. Once you have this confirmed, you will need to email us with the details. This should include your pension provider’s official pension documentation, along with their bank details, as well as their Pension Scheme Tax Reference (PSTR) number and any other reference numbers we may need in order to make payments. We will review your pension provider’s details to ensure that we can work with them and will confirm with you accordingly.

What if I don’t already have a pension provider?

If you don’t already have a pension provider, or if your pension provider doesn’t meet the criteria, we will place you into our workplace pension scheme with the People’s Pension and all your contributions will be paid into this scheme. Once you’ve been enrolled into our workplace pension scheme, you will receive a welcome pack from the People’s Pension. You can then speak to the People’s Pension to find out more.