What is the “Salary Exchange” arrangement?
The Salary Exchange arrangement, sometimes known as ‘salary sacrifice’ is the default method by which pension scheme contributions are paid into pension schemes. It makes no difference to the amount that’s paid – only the method by which it is deducted through your salary. Salary Exchange is not a pension scheme in its own right.
What is the difference of paying through Salary Exchange?
By paying into a pension scheme through Salary Exchange, your employer pays your employee contribution on your behalf, and instead, your gross pay is reduced by the amount of the pension contribution, which is how your employer recovers from you what it has paid to the scheme on your behalf. In this way, there is absolutely no difference to the amount of the pension contribution that will be deducted through your salary.
So why is it a benefit to me?
Because you have a reduced salary (by the amount of your pension contribution), you pay lower National Insurance contribution than you would otherwise and your take home pay is slightly higher as a result. The tax relief for pension contributions is unaffected by Salary Exchange.
If I leave the scheme before I have been a member of 2 years are my contributions still refundable if I pay into the scheme through Salary Exchange?
No. None of the contributions paid through Salary Exchange are refundable should you leave the scheme. However you are able to opt out of the salary exchange arrangement for pension contributions (see below).
I am on a temporary contract / will not achieve 2 years’ service. Can I opt-out of Salary Exchange so that my contributions will all be refundable?
Yes. Simply complete a CAMBens for Pensions Option Form and return it to the Pensions Office. Once this has been received it will be processed in the next available payroll run and you will start to pay your pension contributions direct from your salary. If you leave the pension scheme within 2 years you will be eligible to receive a refund of the contributions you have paid less tax.
I have completed and returned the form to opt out of salary exchange but pension contributions are still being deducted from my salary, why is this?
The form you have completed is to opt out of the salary exchange arrangement only, you remain a member of the pension scheme and the pension contributions are deducted directly from your pay. If you wish to opt out of the pension scheme please contact pensionsonline@admin.cam.ac.uk.
If I do not opt out of salary exchange and leave within 2 years does that mean I won’t have any pension benefits?
You will be entitled to a transfer value of your benefits if you leave within 2 years. This can be transferred to another registered pension scheme in the UK. It may be possible to transfer your benefits to an overseas pension arrangement so long as this is recognised by the UK tax authorities, see here.
If you are a member of the Universities Superannuation Scheme (USS) provided you have been a member of the scheme for more than 3 months you will be entitled to a deferred benefit in USS. You will be able to receive a pension from USS once you reach retirement age even if you are no longer living in the UK.