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Salary sacrifice pensions

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Summary

What a salary sacrifice pension is and how to set it up in Sage Payroll.

Description

There are two steps to set up a salary sacrifice pension scheme in Sage Payroll.

  1. Create a new pension scheme
  2. Set up your payment rules

What is salary sacrifice?

Salary sacrifice is an arrangement between an employee and their employer.

For pensions, the employee will reduce their pay by the pension contribution amount.

In return, the employer agrees to pay the total pension contributions.

The system deducts the contribution from the employee's gross pay, reducing the tax they pay. Both the employee and employer also pay less National Insurance.

▼Annual example

Alex has a salary of £30,000 a year and contributes 5% into their pension. Alex's employer contributes 3%.

  • This means Alex contributes £1,500 and their employer contributes £900
  • This is a total contribution of £2,400
  • Alex agrees to sacrifice £1,500 of their salary, which reduces to £28,500
  • Their employer pays the sacrificed amount into the pension. They also pay their employer contribution
  • Alex then pays tax and National Insurance on their reduced salary of £28,500, saving money on both
▼Monthly example

Alex has a salary of £2,500 a month and contributes 5% into their pension. Alex's employer contributes 3%.

  • This means Alex contributes £125 and their employer contributes £75
  • This is a total contribution of £200
  • Alex agrees to sacrifice £125 of their salary, which reduces to £2,375
  • Their employer pays the sacrificed amount into the pension. They also pay their employer contribution
  • Alex then pays tax and National Insurance on their reduced salary of £2,375, saving money on both

Resolution

If you prefer to watch a video on salary sacrifice pensions, select play below.

How to set up a salary sacrifice pension scheme

You set up your salary sacrifice pension scheme in the same way as any pension scheme. 

NOTE:

You can't update an existing pension plan or group to be a salary sacrifice scheme. You'll need to create a new one.

You set your pension to be Salary Sacrifice when you add your Group or Plan to the pension scheme.

▼ Set up the Plan or Group

For help with creating the pension from the beginning, read Set up pensions.

If in the Group or Plan window, follow the steps below.

  1. Select a Contribution Type of Salary Sacrifice when adding a new pension or group/plan to the payroll.
  2. Enter the employee and employer Percentage contributions.

    NOTE:

    You need to do this even if you want to change to fixed-value pension contributions later. Read Fixed deduction amounts for salary sacrifice pensions. 

     

  3. Enter the required values or use an employer contribution of 3%.
  4. Enter the required values or use an employee contribution of 5%.
  5. Continue with the other steps and select Save.
  6. Select Save on the main pension page.

Create a salary sacrifice based payment

You need to specify if a payment is subject to the salary sacrifice reduction.

NOTE:

You can't edit a payment to Include in calculation of: Salary Sacrifice if it's already used in a completed pay run.

When you create the taxable and NIable payment, select the Salary Sacrifice checkbox.

The checkbox is only available if a salary sacrifice pension already exists.

If you need help setting up a new payment, read Create and manage payments.

How salary sacrifice affects payslips and reports

In line with salary sacrifice guidance, sacrificed amounts don't show as a deduction. On the payslips, it shows as a negative payment.

The total pension contributions show as employer pension on the payslip. No value shows for employee pension.

If you need help with payslips, read our article Payslips.

▼The detailed report

On the payroll Detailed report, the total pension contributions show as employer contributions.

Section 1 The gross pay for the employee is here, minus the salary sacrifice amount.
Section 2 The total salary sacrifice deduction is here.
Section 4 The employer contribution is here. This includes the salary sacrifice figure. The employer paid this on the employee's behalf. 
Section 7 There are no employee contributions to date. The employee has sacrificed part of their salary for their pension. Instead, this shows as salary sacrifice in the Pension Contributions Report.

If you need help with the detailed payroll report, read our article The detailed payroll report.

▼Pension contribution report

The pension contributions report includes salary sacrifice figures. The total pension contributions show as employer contributions.

If you want help with this report, read our article Pension reports.