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The Superannuation Arrangements of the University of London |
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Final Salary Plan ► Active Members ► Salary sacrifice
Salary sacrifice is when an employee gives up the right to receive part of future pay in order to receive a future non-cash benefit. In relation to SAUL you can agree with your employer to give up part of your pay to build up benefits in the Scheme rather than making contributions yourself. This means that you give up 6% of your salary, which you would otherwise pay to SAUL yourself, and your employer then pays the money directly to SAUL on your behalf. If your employer offers a salary sacrifice arrangement they will give you full details when you start your job. Your employer should not put you into salary sacrifice if you were to be worse off or if your right to other benefits would be affected.
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How does salary sacrifice affect my SAUL benefits? Can I have a refund of my contributions? What difference does salary sacrifice make to my National Insurance contributions? What else do I need to consider?
How does salary sacrifice affect my SAUL benefits? This will have no effect upon the level of your final pension benefits or how they are calculated. SAUL is a final-salary pension scheme so your benefits are based upon your salary and service at the time you retire or leave the scheme. Your pension will be based upon your “notional” salary. This means your employer will decide what your salary would have been if you had not taken part in salary sacrifice and this will used to calculate your pension. Salary sacrifice will affect your choices if you were to leave SAUL with less than two years’ service (see ‘Can I have a refund of my contributions?’ below).
Can I have a refund of my contributions? If you leave SAUL and have less than two years’ service in the scheme you can normally choose to take a refund of your contributions less tax and the National Insurance contributions that you were spared during your membership. If you have participated in salary sacrifice for all of your SAUL service you cannot receive a refund of contributions made on your behalf by your employer. You will however retain pension benefits in the Scheme which you can transfer to another pension arrangement or defer until you retire. If you have less than two years’ service in SAUL, and have participated in salary sacrifice for part of this time, you may receive a refund of the contributions you paid less tax (with interest) and deductions for the National Insurance contributions you were spared whilst contributing. However, you will not retain any pension benefits relating to the period you participated in salary sacrifice arrangements and the employer made contributions on your behalf. You still have the option to retain all your benefits in the scheme which you can transfer to another pension arrangement or defer until you wish to take them as a pension.
What difference does salary sacrifice make to my National Insurance contributions? You will pay less National Insurance on earnings between £5,304 and £42,484 a year (in the tax year 2011/12). If your salary falls under £5,304 as a result of salary sacrifice your entitlement to other benefits could be affected. Please see “What else do I need to consider?” below.
If I were to die in service my contributions would be refunded – will this still happen if I participate in salary sacrifice? If a member dies in SAUL service having at any point participated in salary sacrifice, the Trustees of SAUL would refund all contributions made by the member and the contributions made by the employer on the member’s behalf as part of the salary sacrifice arrangements.
What else do I need to consider? If you enter a SAUL salary sacrifice arrangement you should consider whether the reduction in pay could affect your right to other benefits. These could include tax credits and means-tested benefits. If your salary were to fall below the lower earnings limit (£102 a week in 2011/12) any benefits based on National insurance contributions could be affected. Usually the fact that your employer, and SAUL, would treat your pay as being the same as if you had you not taken part in salary sacrifice means that the salary sacrifice should not affect these benefits. However, your employer must provide you with information about the impact of salary sacrifice on all your entitlements before you enter the arrangements. If you are uncertain please contact the Citizens Advice Bureau or other independent adviser. |
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