Salary sacrifice

Most people know that you obtain some tax relief on contributions you make to a pension arrangement like the Telefónica UK Pension Plan. However, not all arrangements enable you to save National Insurance (NI) on the contributions you make – the Telefónica UK Pension Plan does and it is called salary sacrifice.

Salary sacrifice is the name given to the special arrangement whereby you save the NI on the cost of making contributions to your pension. Under salary sacrifice, Telefónica makes contributions to your pension on your behalf and your salary is reduced by a corresponding amount. The effect of this is that you pay less NI, as you are not paying NI on the amount that is contributed to your pension. This arrangement is called salary sacrifice because although Telefónica pays the pension contributions on your behalf, you literally have to give up, i.e. sacrifice, that much of your salary in return.

How much you save in National Insurance under salary sacrifice depends on your earnings and to which section of the Telefónica UK Pension Plan you belong. The table below illustrates what you save by paying contributions under salary sacrifice if you are a Section 1/1A member.

Over the course of a few years this can lead to considerable savings so it's no surprise that paying pension contributions through salary sacrifice has become very popular.

Using salary sacrifice

Salary sacrifice is accessible through flexible benefits at www.O2rewards.com. On joining the Plan, you will have the option to make your contributions on a salary sacrifice basis. You will find that the salary sacrifice option box is pre-selected if, according to the advice the Company has received, you would broadly benefit from salary sacrifice. You can opt out of salary sacrifice through the flexible benefits pages of www.O2rewards.com.

For those members who were pension members at 1 July 2007, unless you chose otherwise at flexible benefits enrolment, you may have been placed into salary sacrifice on the basis of the advice the Company received. You should check your pension statement at www.O2rewards.com.

When not to use salary sacrifice