UK - Employees could boost pension contributions into their defined contribution (DC) pension schemes by up to 20% by embracing salary exchange, Fidelity International revealed today.
Julian Webb, executive director of DC business development, Fidelity International, said: "Salary exchange can be a win-win situation for companies. It means they can save on national insurance and total benefit spend, although we see many paternalistic employers reinvesting these savings back into the pension scheme and boosting employee contributions.
"Salary exchange, a more popular and positive term than salary sacrifice, is simple to set up," he added.
The bank explained salary exchange would see employer and employee contributing to the company pension scheme. Employees would do so by reducing their pay by the same amount they would normally contribute to their pension.
Because the amount sacrificed would no longer be paid as salary, the employer would pay a reduced national insurance (NI) bill and the employee a reduced tax bill, Fidelity added.
Fidelity said, despite a minority of companies with DC schemes offering salary exchange, it predicted a general rise in the number of companies interest in implementing it.
The bank warned salary exchange schemes needed to meet HRMC guidelines, although they do not require HM Customs and Revenue approval.
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