You and the Company pay a Core Contribution, but you can pay more and receive more from the Company. You also save tax on your contributions and most people pay less National Insurance (NI) contributions through SMART Pensions.
Remember, the value of your investment can go down as well as up and may be worth less than what was paid in.
SMART Pensions is a salary sacrifice arrangement that enables employees and the Company to pay lower NI contributions and most members receive higher take-home pay as a result.
Very simply, when you participate in SMART Pensions, you do not pay contributions into your Account within the DC Plan. Instead, the Company pays your contribution for you and your basic salary is reduced. The reduction in your pay results in lower NI payments and so, in most circumstances, your take-home pay is higher.
Some employees may not be eligible to pay contributions through SMART Pensions if, for example, their salary is below a certain level or they work overseas. BAE Systems check that you’re eligible to pay contributions through SMART Pensions, so you don’t need to take any action.
Your Core Contributions and any Matching Contributions will automatically be paid through SMART Pensions, but any Additional Voluntary Contributions (AVCs) you choose to pay will be paid by salary deduction (not through SMART Pensions) so that you can start, stop or change the amount of AVCs you pay at any time.
You don’t have to pay your contributions through SMART Pensions. If you want to opt out, you can do this on the form that is included in the starter pack that’s sent to you soon after you join the DC Plan. You will also have the opportunity to opt in and opt out each September by completing the relevant form.
What contributions will I pay?
You and your Company will pay a Core Contribution as a percentage of your basic salary. This is:
You’ll automatically start paying this contribution through the salary sacrifice arrangement called SMART Pensions.
These are extra contributions that you can choose to pay that are matched by the Company. You can choose to pay
Additional Voluntary Contributions (AVCs)
You can also choose to pay AVCs into your DC Plan. AVCs are paid by salary deduction (not through SMART Pensions). You can start, stop or change the amount of AVCs you pay at any time.
BAE Systems will normally deduct your contribution from your salary after your National Insurance contribution amount has been calculated but, before your Income Tax amount has been worked out. Because your contribution(s) are taken from your salary before tax (gross salary), tax relief will be at the highest rate you pay. For example if you pay £100 and you’re a 20% tax payer the amount of income tax you pay is reduced by £20.
The table below summarises the different contributions that you can pay and what the Company will pay in too:
|You pay||The Company pays||Total paid into your Account within the DC Plan|
|Tier 1: +1%||5%||7%||12%|
|Tier 2: +2%||6%||8%||14%|
|Additional Voluntary Contributions||Any amount|
Increase your contributions regularly
A simple way of boosting your pension is to increase the amount you contribute in each year through AVCs. So why not set an annual reminder in your diary to increase your payments? There may be restrictions, for example your annual allowance or tapered annual allowance, on when and how you can increase your payments, so check with the Pension Service Centre.
If you get a pay rise, this might be a good time to think about increasing your payments too. Regular increases can keep your payments manageable, in line with inflation and have a big impact on how much you could get back.
Increasing your AVCs by a small percentage each year could make a big difference. For example, if you start your payments at £150 a month and increase your payments by 5%, then the next year you pay £157.50 a month. Over time, this can add up. Remember that the value of your investment can go down as well as up and may be worth less than what was paid in.
Make a lump-sum payment
There are advantages to putting a one-off payment into your Account within the DC Plan. For example, if you receive a bonus and pay it into your Account within the DC Plan, you'll get tax benefits from the Government.
As with the payment of regular AVCs, if you pay a lump sum AVC via payroll, tax relief is automatically applied. You do not have to do anything to get the full tax relief. This is your employer's preferred route. Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back via a Self-Assessment tax return or by contacting HM Revenue & Customs (HMRC) if you don’t normally fill in a tax return.
The reclaiming of tax can be time consuming and also involves a process that will be unfamiliar to most. It is therefore recommended by your employer that whenever possible if you wish to pay AVCs you do this via payroll.
Sarah earns £30,000 a year and pays income tax at 20%. The table below shows what she could pay each month, what the Company would pay and the actual cost to Sarah due to the savings in tax she gets because of the effect of tax relief.
|Sarah pays||The Company pays||Total paid into Sarah's Account within the DC Plan||Actual cost to Sarah|
|Tier 1: +1%||£125||£175||£300||£100|
|Tier 2: +2%||£150||£200||£350||£120|
So, if Sarah took advantage of the 2% Matching Contributions, £350 would be paid into her Account within the DC Plan each month, but because of the tax relief and Company contributions she receives, it would only cost her £120.
The Trustee has provided you with the following useful documents. Standard Life Assurance Limited is not responsible for the content of these documents.