Salary sacrifice

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The introduction of the 2015 NHS pension scheme has important implications for members with salary sacrifice arrangements and those considering them in the future.

A salary sacrifice is a contractual agreement between an employer and an employee, where the employee gives up some of their entitlement to cash earnings in return for non-cash benefits, e.g. childcare vouchers, car hire schemes or gym membership.

Salary sacrifice will reduce your total pensionable pay (TPP), as the amount sacrificed or used to pay for items is taken directly from the gross pay and is therefore not pensionable. Pension is only paid on the remaining amount, i.e. the TPP after the salary sacrifice amount has been taken off.

For members of the 1995 pension scheme, if salary sacrifice is carried out within the last three years of pensionable membership before retirement, this could affect the calculation of your pension.

For members of the 2008 scheme, if salary sacrifice is carried out within the last 10 years of pensionable membership before retirement, this could affect the calculation of your pension.

For members of the 2015 scheme, as your earnings throughout your career are used to calculate your pension, a reduction in gross pensionable pay will have a negative effect on the amount of pension built up in that year. The overall effect from participating in any salary sacrifice scheme would reduce the amount of final benefits earned.

For more information, please contact your locality HR office.

Published 4th March 2015 

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