BEWARE SALARY SACRIFICE

RMT helpline 0800 376 3706 :: may 2011 :: RMTnews 31 Despite RMT objections, many employers that operate pension schemes for employees have introduced salary sacrifice arrangements as a way of reducing National Insurance Contributions (NIC). Whilst staff are promised lower NIC contribution, which marginally increases their take- home salary, employers are the real winners when it comes to these savings. Salary sacrifice schemes have a number of aliases including PaySave or Smart Pensions, and these arrangements allow employees and employers to save NIC on their pension payments. They work by reducing each individual’s salary by the amount of their contribution of their pension scheme; thus the employee’s pay is lower and NIC are reduced accordingly. The NIC rates for 2011/12 for employees is 12 per cent or 10.4 per cent for those who are contributing members of a pension scheme which is contracted-out of the State Second Pension. An employee earning £27,000 and making pension contributions of seven per cent will save less than £5 a week. However, employers’ savings are potentially much greater. NIC rates for 2011/12 for employers are 13.8 per cent, and for employers who operate a pension scheme which is contracted-out the NIC rate is 10.1 per cent. For every employee who agrees to participate in a salary sacrifice arrangement there is a potential saving to the employer of up to 13.8 per cent on their gross salary. It goes without saying that this saving is worth a lot more than £5 a week to the employer. Participation in salary sacrifice should not affect other terms and conditions of employment; however, in certain circumstances, such as those on low incomes, it can affect entitlements to state benefits such as the Basic State Pension, Jobseekers Allowance, Incapacity Benefit, Maternity Allowance and Bereavement Benefits. This is because the reduction in salary would take earnings below the Lower Earning Limit, currently £102 per week for 2011-12, which would reduce the build up of entitlements to these benefits. RMT policy is opposed to salary sacrifice schemes as these arrangements effectively reduce the value of NIC collected by the Treasury, which are, of course, used to fund the National Health Service and State Pensions. RMT believes that where salary schemes are introduced all savings should be paid into the employer’s pension scheme to improve the funding position and reduce contribution levels. This is particularly essential where company pension schemes are in deficit. It is the union’s experience that where employers have made extra revenue, this profit has not been put back into the pension scheme. RMT is also totally against employees being automatically opted-in to such schemes. Management should not assume that employees wish to participate because they will slightly increase their salary. It is clear that many employers are automatically enrolling employees in so that they can cream off the significantly higher financial gains from salary sacrifice. As a result RMT has campaigned actively to encourage workers to opt-out by sending them individual RMT opt-out forms to be sent to their employer. The union will continue to organise and campaign against employers who intend to introduce salary sacrifice as a way of inflating their profit margins at expense of state benefits and members’ future pension entitlement. Many employers that operate pension schemes are introducing salary sacrifice arrangements to inflate profit margins BEWARE SALARY SACRIFICE