Salary sacrifice

For information

What is salary sacrifice?

Salary sacrifice is the method by which a member “gives up” part of their salary, in exchange for another benefit from their employer. This could be used for a variety of things such as child care, car allowance and pension contributions. The advantage to the employee is lower tax and National Insurance (NI) contributions; the employer also saves on its NI contributions.

The USS factsheet on salary sacrifice has more information and is available from USS.co.uk and the employer portal.

Why is it important that employers understand their salary sacrifice arrangements in relation to the cost sharing contributions change?

• For historic reasons (see “How do employers set up salary sacrifice with USS” below), some employers only offer salary sacrifice for ordinary member contributions and the match, and not for other additional member contributions.
• A member currently paying the match may benefit from salary sacrifice.
• After 31 March 2019, they will still be able to pay the match (and, if applicable, benefit from salary sacrifice) but will not receive any employer’s matched contribution.
• If as a result of the cost sharing contributions change (and particularly the change to the match) the member decides to cancel the match and instead pay a 1% additional contribution, they may find that their employer’s salary sacrifice arrangements mean salary sacrifice is not applied for this additional contribution.
• The member would therefore lose the benefit of a reduced NI contribution on this 1% contribution. Members may therefore wish to speak to their employer to establish the position before making any changes to their elections (via My USS) and so it is useful for an employer to know its position.

How do employers set up salary sacrifice with USS?

The USS Rules require an employer to enter into a supplementary deed of accession (an agreement with the trustee) prior to offering salary sacrifice for USS pension contributions to members. See I Letter 867 (available from the Employer resource hub on the employer portal) for more information on supplementary deeds of accession for these purposes.

What salary sacrifice arrangement an employer offers its members for USS pension contributions may depend on when its latest supplementary deed of accession was effective, as follows:

For supplementary deeds of accession effective Pre October 2016:
Salary sacrifice was only available for ordinary member contributions and the match (when it was introduced from October 2016). Ordinary and match contributions must always be treated the same.

For supplementary deeds of accession effective from October 2016 onwards:
All contributions, including additional contributions, could be paid via salary sacrifice.

An employer does not have to start offering salary sacrifice following the execution of the supplementary deed of accession. If the employer does offer salary sacrifice, they do not have to offer it in respect of additional contributions - they could offer salary sacrifice for ordinary member contributions and the match only if they wished.

However, the option remains available to an employer to change its approach (to allow additional contributions to be paid via salary sacrifice).

If an employer completed their supplementary deed of accession prior to October 2016 and subsequently wishes to offer salary sacrifice for additional contributions then they will need to sign a further supplementary deed of accession.

How can an employer find out if it offers salary sacrifice for USS pension contributions and how it applies for its members?

If you aren’t sure whether your institution offers salary sacrifice for USS pension contributions, or which contributions it applies to, email pensionspolicy@uss.co.uk who may be able to provide a copy of any supplementary deed of accession and confirm how it applies.

How can an employer arrange to offer salary sacrifice for USS pension contributions in the future?

If your institution wishes to offer salary sacrifice in the future (including additional contributions where currently only ordinary and match contributions are paid via salary sacrifice), I Letter 867 provides information and a blank deed of accession. This can be completed and returned to pensionspolicy@uss.co.uk, who will confirm once it has been executed.

Note that if an employer chooses to use salary sacrifice, they will be responsible for ensuring that appropriate contractual arrangements are in place with their employees and that the arrangements satisfy any HMRC requirements.