salary sacrifice...my guide to salary sacrifice looking after your future, today 7 example: pension...

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Your guide to Salary SacrificeBabcock Retirement Savings Scheme (BRSS) Part of the Babcock International Group Pension Scheme

Looking after your future, today.

2 Salary SacrificeBabcock International Group Pension Scheme | Babcock Retirement Savings Scheme

Salary Sacrifice is a more efficient way of making contributions to the BRSS section of the Babcock International Group Pension Scheme (the Scheme).

Through Salary Sacrifice, the amount of your pension contributions remain the same. Making contributions through Salary Sacrifice means that you will make savings as you pay less National Insurance contributions.

What we mean by Salary Sacrifice?

3My guide to Salary SacrificeLooking after your future, today

Contents

How does it work and what are the benefits? 4

How Salary Sacrifice affects you 6

Answering your questions 8

Salary SacrificeBabcock International Group Pension Scheme | Babcock Retirement Savings Scheme 4

With Salary Sacrifice, instead of you paying your Scheme contribution out of your basic salary, the Company will pay that contribution instead into the Scheme on your behalf, before paying you your salary. You will then receive your salary minus that contribution.

Salary Sacrifice takes advantage of current pension, tax and National Insurance law to benefit you.

How does it work and what are the benefits?

Without Salary Sacrifice, both you and the Company pay National Insurance on your basic salary before deduction of your employee pension contribution.

As the basic salary you receive will be lower, both you and the Company will pay less National Insurance contributions.

Contributions model (not through Salary Sacrifice)

Employee basic salary PensionNational Insurance

contributionsEmployee

take-home pay

My guide to SMARTLooking after your future, today 5

Contributions model using Salary Sacrifice

My guide to Salary SacrificeLooking after your future, today

Employee basic salary

Salary Sacrifice contribution

paid Reduced National Insurance

Employee take-home pay is more

Less National Insurance payable

because basic salary is less

How does Salary Sacrifice affect my pension?Salary Sacrifice does not alter your entitlements under the Scheme. Salary Sacrifice does not affect the amount of your pension benefits, your dependants’ benefits or entitlements, or your death in service benefits.

The amount paid into the Scheme will not change and you still benefit from tax relief on your pension contributions.

How does Salary Sacrifice affect my salary?Salary Sacrifice involves a variation to your terms and conditions of employment by reducing your contractual basic salary by the equivalent of your contributions to the Scheme, in return for an equivalent employer contribution into the Scheme.

Your pre-Salary Sacrifice salary (that is your basic salary before taking into account the new Salary Sacrifice reduction) will now be known as your reference salary. Future pay increases will continue to be based on your reference salary. Your overtime rate and any other employee benefits will continue to be based on your reference salary. Replies to any enquiries from banks, building societies and other lenders will also quote your reference salary.

What do I have to do to take advantage of Salary Sacrifice? When you become a member of the Scheme you will be automatically enrolled into Salary Sacrifice unless you are not eligible to participate in Salary Sacrifice (as advised by your local HR contact). If this is the case, you will make pension contributions from your gross salary.

Can I choose not to participate in Salary Sacrifice?If you don’t want to enjoy the benefits of Salary Sacrifice you should complete and return a Salary Sacrifice opt-out form available from the Document library in the BRSS area of www.myoneday.co.uk If you do opt out, you will not be able to enjoy the benefits of Salary Sacrifice until agreed by the Company. Your membership of the Scheme will continue, but because you have opted out of Salary Sacrifice your contributions will be deducted from your gross salary and you will see a deduction each month on your payslip.

You may only opt out when you join the Scheme, at 31 March each year, or if a lifestyle event occurs. Please see the section entitled ‘Answering your questions’ on page 9 for examples of lifestyle events.

You may wish to take independent financial advice before deciding to opt out.

Is everyone eligible for Salary Sacrifice?Salary Sacrifice is unsuitable for a very small number of members.

If your basic salary is at, or close to, the National Minimum Wage (NMW) you will not be able to participate in Salary Sacrifice as Babcock cannot reduce your contractual hourly rate below this threshold. If this applies to you, we will write to you separately explaining the issues.

If you are paid at, or close to, the threshold at which National Insurance contributions are payable you will not be able to participate in Salary Sacrifice. The reason for this is that you could lose entitlement to certain State benefits.

You will therefore be automatically opted out of Salary Sacrifice but can choose to opt in to Salary Sacrifice if your circumstances change in the future. If you want further details please contact your HR representative.

How long will Salary Sacrifice continue for?It is intended that Salary Sacrifice will continue indefinitely. However, if pension, tax or National Insurance law changes, or if it is no longer viable for Babcock to offer it, Babcock reserves the right to withdraw Salary Sacrifice at any time without liability.

How do I get more information?This guide explains how Salary Sacrifice works and should answer all your questions. However, if you still have questions, please contact your HR representative.

How much could I save by participating in Salary Sacrifice?Most people will save by participating in Salary Sacrifice because they will be paying less National Insurance. The exact saving you will make will depend on your basic salary, contribution rate and the rate of National Insurance you pay. The table on page 7 gives some examples of how much members can save based on example salaries and contribution rates.

6 Salary SacrificeBabcock International Group Pension Scheme | Babcock Retirement Savings Scheme

How Salary Sacrifice affects you

My guide to Salary SacrificeLooking after your future, today 7

Example:Pension contributions are eligible for Income Tax relief but not National Insurance relief.

This means that if you are being paid £1000 per month (for example) by your employer and you want to pay £100 into your company pension, your Income Tax liability would be calculated on just £900 of your pay, meaning you only pay £180 in Income Tax rather than £200 (assuming you are a basic rate taxpayer).

However your National Insurance is calculated on the whole £1000 at a rate of 12 per cent, costing you £120.

If instead of paying you £1,000, your employer pays you £900 and makes an employer contribution into your pension of £100, you save some money. You still end up with the same amount in your pension (£100) and you still pay the same amount of tax (£180) but you’ve reduced the National Insurance costs.

You now only pay £108 National Insurance on your £900 pay, saving you £12 per month. The money saved could even be used to boost your pension contribution, increasing it to £112.

Actual savings will differ for each member as the savings are dependent on how much you earn and how much you contribute to the Scheme.

Savings reduce once your income goes over the Upper Earnings Limit (£42,385 IN 2015/16) because your personal liability to National Insurance drops to just 2 per cent above this threshold but it is still a way to save money. In the example above the saving would be £2 per month on a pension contribution of £100.


Answering your questions

Q. WhyhaveyouintroducedSalarySacrifice?A. It reduces the amount of National Insurance contributions you pay as a member of

the Scheme. The Company also pays lower National Insurance contributions and this will help to offset the costs of providing benefits to employees.

Q. WhodidyoutalktoaboutSalarySacrifice?A. Deloitte assisted us in implementing the arrangement. We also obtained the

approval of the Trustee of the Scheme and clearance from HM Revenue andCustoms (HMRC).

Q. WillnewentrantstotheSchemebeabletoenjoythebenefitsofSalarySacrifice?A. Yes, new entrants will be eligible from the start of their membership unless their local

HR representative has indicated that they are not eligible to participate.

Q. DoallcurrentcontributingmembersoftheSchemebenefitwith SalarySacrifice?

A. The majority of employees will be better off and will want to participate in Salary Sacrifice. However, there are a small number of employees who may not benefit. More information is provided in the questions and answers that follow.

Q. DoyouthinktheGovernmentwillchangethelawsothatthisbenefitwillnolongerbeavailable?

A. This is always a possibility. If it did happen, we could no longer offer Salary Sacrifice. You will be advised of the position were that to happen.

Q. WhatdoIhavetodotoenjoythebenefitsofSalarySacrifice?A. You don’t need to do anything as you will be automatically included.

Q. WhenwillIstarttomakemysavings?A. Savings will start when you join Salary Sacrifice.

Q. Willmytake-homepaybereduced?A. If you were previously making contributions, your take-home pay will not reduce.

By reducing your contractual basic salary you actually increase your take-home pay. If you have just joined the Scheme, Salary Sacrifice delivers National Insurance savings, allowing you to keep more of your take-home pay than would be the case if you joined on a non-Salary Sacrifice basis.


Q. Willmyhourlyovertimeratebereduced?A. No. Your hourly overtime rate will continue to be calculated, as at present, on your

reference salary.

Q. Whatdoyoumeanbyalifestyleevent?A. Some examples of lifestyle events are divorce, separation, adoption or maternity

leave, a move from full-time to part-time working or a change in your terms and conditions of employment that reduces your basic salary.

Q. WhatshouldIdoifIhavealifestyleeventandwanttoopt-out?A. You should complete and return a Salary Sacrifice opt-out form

available from the Document library in the BRSS area of www.myoneday.co.uk

Q. WillSalarySacrificeaffectmyincometaxposition?A. There will be no change to your UK tax position as a result of participating in

Salary Sacrifice.

Q. Howwillmypayslipchange?A. Employees will see their basic salary being reduced by the Salary Sacrifice

contribution and their income tax and National Insurance contributions calculated on their revised basic salary.

Q. Whatinformationwillbeprovidedtomortgagesorbankreferences?A. Mortgage providers and banks are used to companies using Salary Sacrifice

arrangements. Your reference salary will be provided in references to banks, building societies and any other mortgage provider. This is your pre-Salary Sacrifice salary.

Q. Doesthischangemytermsandconditionsofemployment?A. Changing to Salary Sacrifice represents a change to the terms and conditions of your

employment, however, all other employment terms and benefits are unaffected by the restricted change required to facilitate Salary Sacrifice.

Q. CanIcontinuetobeinSalarySacrificewhilstonmaternity,paternityor adoptionleave?

A. Yes, as contributions will continue to be paid based on your Statutory Maternity Pay or reference salary. If you wish to opt out of Salary Sacrifice or discuss this, please contact your HR representative.

Q. WillSalarySacrificeaffectthecalculationofmypensionbenefitswhenIretire?A. No, your benefits from the Scheme will be unaffected. If you would like further

information about your Scheme pension, please call the Aviva customer services helpline on 0345 6044463.


Q. IamoverStatePensionAge–canIparticipateinSalarySacrifice?A. If you are an employee over State Pension Age you do not pay National Insurance

contributions and would therefore not benefit from a National Insurance contributions saving through Salary Sacrifice. However, as Babcock continues to pay National Insurance contributions and will therefore make savings you will automatically be included in Salary Sacrifice unless you opt out.

Q. WhatifIamalreadyparticipatinginothersalarysacrificebenefitssuchaschildcarevouchersorholidaypayschemes?

A. Your division may already have other benefit arrangements, e.g. childcare vouchers, which involve you converting part of your reference salary. When considering whether it would be inappropriate to take part in Salary Sacrifice you should take into account your basic salary after the reduction for any other benefits. If you then fall into the category who regularly earn below the minimum participation salary, and who potentially may lose entitlement to certain State contributory benefits you may wish to opt out of Salary Sacrifice.

Q. WhatistheimpactonmyStatePensionbenefits?A. The State Pension is made up of two parts:

Basic State Pension (‘BSP’) Your BSP will not be affected by participating in Salary Sacrifice.

State Second Pension (‘S2P’) The amount of S2P you will receive is based on a fraction of your earnings within a band of earnings each tax year of your working life. If you earn between £15,300 and £40,040 a year (for 2015/16 tax year), there may be a very small reduction in your S2P because you have paid a lower amount of National Insurance contributions. The actual size of the reduction in S2P depends on your age and your total pay.

If you are concerned about the impact on your S2P and do not consider the benefit of an increase in your take-home pay sufficient to outweigh any reduction in it, you may wish to consider seeking independent financial advice and opting out of Salary Sacrifice.

Q. CanImakeadditionalregularorone-offcontributionsunderSalarySacrifice?A. Yes, all additional regular contributions will be included in Salary Sacrifice. You can

make contribution changes at any time. You can also make one-off contributions through Salary Sacrifice but this must be agreed with Babcock before the month in which the sacrifice will take place. For example, to make a one-off contribution to take effect from August, this must be agreed with Babcock by 31 July.

Answering your questions


Q. WhatistheimpactonmystatutoryandotherStatebenefits?A. Babcock will ensure that under Salary Sacrifice you will receive the same statutory

adoption, maternity, paternity or sick pay payments had you not participated in Salary Sacrifice.

Entitlement to some State benefits, such as incapacity benefit and Job Seekers Allowance, are based on the amount of National Insurance contributions that you pay. Other benefits which are dependent on National Insurance contributions are bereavement parent allowance and widowed parent allowance.

If under the Scheme your revised basic salary (post-Salary Sacrifice) is taken close to or below the Lower Earnings Limit (LEL) then your entitlement to some State benefits may be affected and as such you may wish to opt out.

If your basic salary falls below the minimum participation salary during any pay period, you will automatically be opted out of Salary Sacrifice until such time as your basic salary exceeds the minimum participation salary.

There are other State benefits which are not based on the amount of National Insurance contributions that you pay but are means tested. Consequently, the Scheme will have no impact on your entitlement to those State benefits which are means tested such as:

• Carer’s allowance

• Childbenefit

• Counciltaxbenefit

• Guardian’s allowance

• Housingbenefit

• Income support

• Severe disability allowance

• Tax credits

If your revised basic salary (post-Salary Sacrifice) is used in any assessment of entitlement to these benefits rather than the reference salary, your entitlement to certain means-tested State benefits may increase. However, means-tested assessments depend on other personal factors also and so Babcock cannot offer any further guidance. You may therefore wish to obtain independent financial advice.

Produced by the Trustee of the Babcock International Group Pension Scheme

Date: November 2017

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