Understanding pension salary sacrifice
Up to 60 CPD minutes
Module description
Introduction
Salary sacrifice is an extremely tax efficient way of saving for retirement. It offers benefits for both the employee and employer. It’s important that an adviser can articulate the benefits that salary sacrifice can offer and the different options available. They also need to be aware of the potential pitfalls a client could face by entering into a salary sacrifice arrangement.
This module consists of two sections and should take around 60 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 60 minutes can be claimed.
This module consists of two sections and should take around 60 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 60 minutes can be claimed.
Outcomes
On completion of this module you should be able to:
- Explain the benefits of salary sacrifice
- Describe what’s required for a valid sacrifice arrangement
- Explain the potential drawbacks of using salary sacrifice
Learning material
Salary sacrifice and pension contributions
This part of the module looks at the benefits of salary sacrifice for both the employer and the employee. It outlines the possible drawbacks plus what’s required for a valid sacrifice arrangement.
CPD minutes: up to 30
Read the pension salary sacrifice guideOpens in new windowCPD minutes: up to 30
Salary sacrifice funding options
The second part of this module looks at the different ways in which the arrangement can be set up, plus the impact on the client’s pension contributions and their take home pay.
CPD minutes: up to 30
Read the salary sacrifice funding options guideOpens in new windowCPD minutes: up to 30
Post learning assessment
Question 1
Which of the following is NOT a potential benefit of salary sacrifice?
a. Higher rate tax relief is given immediately without the need for self-assessment
b. The employer will save 13.8% National Insurance (NI) on the amount sacrificed
c. Employer contributions don’t count towards the employees annual allowance
d. Higher rate taxpayers will generally save 2% NI on the amount sacrificed
a. Higher rate tax relief is given immediately without the need for self-assessment
b. The employer will save 13.8% National Insurance (NI) on the amount sacrificed
c. Employer contributions don’t count towards the employees annual allowance
d. Higher rate taxpayers will generally save 2% NI on the amount sacrificed
Question 2
Which of the following TWO conditions are required for a valid sacrifice?
a. The employee’s terms and conditions must be changed to reduce their salary in exchange for an increased pension contribution
b. HMRC must be informed before salary may be sacrificed
c. The arrangement must be for a period of more than 12 months
d. The arrangement cannot be backdated and must apply to future earnings
a. The employee’s terms and conditions must be changed to reduce their salary in exchange for an increased pension contribution
b. HMRC must be informed before salary may be sacrificed
c. The arrangement must be for a period of more than 12 months
d. The arrangement cannot be backdated and must apply to future earnings
Question 3
Entering a new salary sacrifice arrangement could lead to a reduction in the annual allowance for some high-earning clients. This is because...?
a. it will trigger the money purchase annual allowance
b. the individuals' net relevant earnings are reduced
c. salary sacrifice arrangements started after 8 July 2015 will increase threshold income for the tapered annual allowance
d. it will increase adjusted income for the tapered annual allowance
a. it will trigger the money purchase annual allowance
b. the individuals' net relevant earnings are reduced
c. salary sacrifice arrangements started after 8 July 2015 will increase threshold income for the tapered annual allowance
d. it will increase adjusted income for the tapered annual allowance
Check your answers
Which of the following is NOT a potential benefit of salary sacrifice?
c. Employer contributions don’t count towards the employees annual allowance
c. Employer contributions don’t count towards the employees annual allowance
Which of the following TWO conditions are required for a valid sacrifice?
a. The employee’s terms and conditions must be changed to reduce their salary in exchange for an increased pension contribution
d. The arrangement cannot be backdated and must apply to future earnings
a. The employee’s terms and conditions must be changed to reduce their salary in exchange for an increased pension contribution
d. The arrangement cannot be backdated and must apply to future earnings
Entering a new salary sacrifice arrangement could lead to a reduction in the annual allowance for some high-earning clients. This is because...?
c. salary sacrifice arrangements started after 8 July 2015 will increase threshold income for the tapered annual allowance
c. salary sacrifice arrangements started after 8 July 2015 will increase threshold income for the tapered annual allowance
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.