Setting up your Salary Sacrifice Pension scheme (the ultimate guide)

Steps to set up a salary sacrifice pension scheme:

1. Confirm that your pension scheme supports salary sacrifice arrangements
2. Get agreement from your employees
3. Update wording of employee contracts, and ask employees to re-sign
4. Update your pension scheme to be salary sacrifice
5. Update payroll software to calculate pensions based on salary sacrifice

Step 1: Confirm that your pension scheme supports salary sacrifice arrangements

Here are some popular pension schemes that do support salary sacrifice arrangements:

1. NEST
2. Smart Pension
3. Penfold
4. Now: Pensions
5. Aviva (they often call it “salary exchange”)
6. The People’s Pension

All of the above schemes integrate with Onfolk Payroll.

This means that calculations are automated, as well as pension scheme updates. So that you don’t have to log in to your pension platform every month.

Step 2: Get agreement from your employees

Make the team aware of what salary sacrifice pensions means for them, and let them know that you need their agreement for a contract update.

Note: To offer salary sacrifice (or any kind) to an employee, it cannot take them under the National Minimum Wage (as of 1 April ‘23, this is £10.42 per hour for employees older than 23 years)

Step 3: Update wording of employee contracts, and ask employees to re-sign

Here’s a handy snippet you can adapt for your contracts (this is not legal advice, and it is your responsibility to adapt it as you see fit):

The government requires employers to enrol their employees who are eligible for auto-enrolment into a workplace pension scheme.

We have selected [Pension Scheme Name] as our pension provider.

If you meet the auto-enrolment criteria, you will be eligible for the Company's Salary Sacrifice Pension Scheme, whereby you agree that a specified portion of your gross salary, in line with auto-enrolment rules, is directly contributed by the Company to your pension fund through [Pension Scheme Name].

However, if participating in the Salary Sacrifice Scheme results in your earnings falling below the National Living Wage, you will remain within the standard Defined Contribution Scheme with [Pension Scheme Name].

You will automatically be enrolled into the appropriate pension scheme upon commencement with the company.

Once enrolled, [Pension Scheme Name] will provide you with further information and log in details, including details on how to opt out if desired.

Step 4: Update your pension scheme to be salary sacrifice

Some pension schemes (e.g. NEST) will have a portal where you can update your scheme to be salary sacrifice. Here is NEST’s guide to do so.

For most others, you’ll need to message their customer support.

In our experience, most schemes can enable salary sacrifice for you in a day or two.

To help you along, here are the contact details for some popular schemes which Onfolk integrates with:

1. Smart Pension - 0333 666 2626 / contact page
2. Penfold - 020 8003 5908 / contact page
3. Aviva - contact page
4. Now: Pensions - 0330 100 3334 / contact page
5. The People’s Pension - 0300 2000 555 / contact page

Step 5: Update payroll software to calculate pensions based on salary sacrifice

If someone else does your payroll, you’ll need to ask them to update the software they’re using to factor in salary sacrifice calculations.

We’ve seen some accountants be reluctant to do this and take a while to process updates.

If you use a modern payroll software like Onfolk, updating your pensions to be salary sacrifice can be done in 2 clicks.

Conclusion

That’s it! You’re ready to start saving your team and your company money.

Feel free to email hello@onfolk.com if you have any additional questions. We’d be happy to help.

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