What does it cost?
Whichever section you're in, you receive tax relief on your contributions so the actual cost to you is less than the contributions you make.
Nestlé takes your pension contributions from your pay before they take any income tax away. This is known as the ‘net pay arrangement’. This means that you get the tax relief on all your contributions, including any Additional Voluntary Contributions, directly in your pay. Information on tax relief and pension contributions can be found here: www.gov.uk/tax-on-your-private-pension/pension-tax-relief
After you’ve been a member of the Fund for one month (or two years if you joined Nestlé before 1 July 2016), you can also make National Insurance savings by making contributions through salary sacrifice, which means it will cost even less to save for your retirement. This will happen from the 1st of the month following one month’s (or two years’) membership in the Fund.
For example:
You earn £24,000 (£2,000 a month) and contribute 1%
to DC Start:
After tax relief
=
National Insurance saving
£2
In DC Core you can choose to contribute between 5% and 8% of your Pensionable Earnings each month into your account. In addition, Nestlé also contributes 1.5 times your contribution rate up to a maximum contribution of 12%, helping to increase the value of your account.
| You contribute* |
Nestlé contributes |
| 5% |
7.5% |
| 6% |
9% |
| 7% |
10.5% |
| 8% |
12% |
*Includes contributions made by Nestlé on your behalf through salary sacrifice.
If you choose to make contributions of more than 8%, these are classed as Additional Voluntary Contributions (AVCs). Nestlé doesn’t pay anything towards your AVCs.
In DC Start you contribute 1% of your Pensionable Earnings each month into your account. In addition, Nestlé contributes 2% of your Pensionable Earnings, helping to increase the value of your account.
Under automatic enrolment legislation, the minimum contributions that you pay will change in the future. Currently contributions are set to increase as follows*:
|
You contribute* |
Nestlé contributes |
From 1 August 2013 to
5 April 2018 |
1% |
2% |
| From 6 April 2018 |
3% |
3% |
| From 6 April 2019 |
4% |
5% |
*Includes contributions made by Nestlé on your behalf through salary sacrifice.
Increasing your benefits
If you’re in DC Core you have the option to pay Additional Voluntary Contributions (AVCs). AVCs are contributions that you can make on top of your main contributions to provide additional benefits at retirement.
AVCs are particularly useful if you are thinking of retiring early or if you wish to make up for times when you were not building up pension. Nestlé doesn’t pay anything towards your AVCs.
As they are paid into DC Core, AVCs build up on a Defined Contribution (DC) basis. See DC benefits for information about how DC Core works.
Remember, if you’re already building up main pension in DC Core, you should pay the maximum DC Core contribution of 8% before considering paying AVCs, as Nestlé will contribute 1.5 times your DC Core contributions up to a maximum of 12% (8% employee contribution).
Under current legislation, the features of AVCs are:
- You decide how much to pay.
- You can make regular AVCs or one-off lump sum AVCs.
- AVCs normally receive full tax relief, although there are some circumstances when your ability to make AVCs may be restricted (see Tax allowances and, after one month’s membership, you can make regular AVCs through Salary Sacrifice, so you can also make National Insurance savings. Salary sacrifice is not currently available to employees of Galderma and Osem.
- The returns on your investments are largely tax free.
- At retirement, you can use your AVC fund towards your tax-free cash sum or to buy additional benefits. If you have previously built up pension in a DB section of the Fund, taking your AVCs as tax-free cash means you have to give up less of your pension from the DB sections in exchange for cash.
When considering paying AVCs, it is important to bear in mind that they are long-term savings and are not available until you retire. There are other long-term savings vehicles outside of the Fund, which you could consider as an alternative to, or in addition to, AVCs.
If you would like to start paying AVCs, you will need to decide how to invest them (see Investments) and then complete and return an AVC Application Form.
You can start, increase, decrease or stop your AVCs at any time, but you can only currently change your AVC investment choices on a quarterly basis.
We can only accept AVCs from the remuneration you receive from Nestlé, made via a payroll deduction. We do not accept payments from other sources of income.
If you are already making AVCs and would like to stop making them, you can do this at any time by completing and returning a Cessation of Payment Form. Please note that one month's notice is required. If you stop, you will be able to start making AVCs again in the future, subject to any restrictions on tax relief in force at the time.
Salary Sacrifice
Unless you choose to opt out in advance, you will automatically be entered into a salary sacrifice arrangement after you have been a member of the Fund for one month, or two years, depending on when you joined Nestlé.
Salary sacrifice is a tax efficient way of making contributions to your pension savings. It is an arrangement between you and Nestlé where you agree to a reduction in your salary and in return you receive a benefit. In this case the benefit is a contribution to your pension. All contributions to the Fund (including any Additional Voluntary Contributions (AVCs)) automatically receive tax relief. But with salary sacrifice, you can save on National Insurance (NI) contributions as well. It works like this:
- You stop making pension contributions and agree to reduce your gross monthly pay by the value of those contributions (including AVCs)
- In return, Nestlé pays an equivalent amount directly to your account on your behalf
- This is in addition to the employer contributions that Nestlé make to your account
- You save on both tax and NI contributions as your taxable income is reduced by the amount you agree to give up
- Nestlé also saves on NI contributions as your pay is lower.
Salary sacrifice is not currently available to employees of Galderma and Osem.
By signing your contract of employment, you have consented to being automatically entered into salary sacrifice for the payment of your pension contributions on the first of the month after you have completed one month’s membership of the Fund. You should take some time to read 'What should I consider?' below to make sure that salary sacrifice is right for you. If you don’t want to make pension contributions by salary sacrifice, you can opt out - see 'What if' below.
In salary sacrifice, you will have a Reference Salary which is equivalent to your pay or salary before you make the sacrifice. Nestlé will use your Reference Salary to calculate all salary-related employment benefits such as pay increases, bonuses, holiday pay, life assurance, sick pay, maternity pay and overtime. This means that none of these benefits will be affected by making your contributions by salary sacrifice. We also use your Reference Salary to determine your Pensionable Earnings and calculate the contributions you and Nestlé pay.
Although most people will benefit from salary sacrifice, in some circumstances, salary sacrifice may not be suitable for you. You should be aware of the potential drawbacks and take them into account before deciding whether salary sacrifice is right for you.
Salary sacrifice could affect your current or future entitlement to a range of state benefits, including tax credits. This is because you need to earn more than the Lower Earnings Limit (the ‘LEL’, which is £5,876 a year or £490 a month in 2018/19) to be eligible to receive a number of state benefits. If your earnings (after salary sacrifice) fall below the LEL, you will not be eligible for: Statutory Sick Pay, SMP (see below), Statutory Paternity Pay, Statutory Adoption Pay, Incapacity Benefit and Jobseeker’s Allowance. More information on state benefits can be found below and at: www.gov.uk/browse/benefits.
Tax credits:
To check if your tax credits will be affected, phone HMRC’s tax credit helpline on 0345 300 3900 or visit www.gov.uk/browse/benefits/tax-credits .
Statutory maternity pay:
If you qualify for SMP, you will receive 90% of your average weekly earnings for the first six weeks of your maternity leave, followed by the lower of £140.98 a week (standard weekly rate 2018/19) or 90% of your average weekly earnings for the rest of your period of paid maternity leave. You will continue to make contributions to the Fund through salary sacrifice whilst you receive SMP, unless it has the effect of reducing your income to below the standard weekly rate. If this occurs, we will take you out of salary sacrifice until you return to work after your maternity leave. This ensures that you do not receive less than the standard weekly rate and can continue to benefit from salary sacrifice where possible.
State pension:
If you have not paid enough NI on your income, your State Pension may be reduced at retirement. You may also be affected if you pay the married woman’s reduced rate of NI.
National Living wage
Salary sacrifice should not reduce your cash pay to below the National Living Wage. This means that if you are working full time and earn around £13,000 or less, you should take care when considering entering into a salary sacrifice scheme.
…I want to opt-out?
If salary sacrifice is not right for you or you decide that you do not want to make pension contributions by salary sacrifice for whatever reason, you can choose to opt out. If you decide to opt out, you will carry on paying contributions directly from your salary. You will continue to receive tax relief on your contributions under current legislation, but will also continue to pay NI on the value of your pension contribution each month. To opt out, you should contact Nestlé Pensions for a Salary sacrifice opt-out form.
…you are over State Pension Age and no longer pay National Insurance?
You will not save any money by participating in salary sacrifice because you no longer make NI contributions. However, unless you tell us otherwise, we will still include you in salary sacrifice so that Nestlé can benefit from the reduced employer NI contributions due on your pay.
…you decide to participate in salary sacrifice for other benefits?
Making pension contributions through salary sacrifice will not normally have any impact on other salary sacrifice arrangements you choose to join. However, the exception would be if it has the cumulative effect of reducing your total post-salary sacrifice take-home pay to below either the Lower Earnings Limit or the National Living Wage.
…you are repaying a student loan?
If you participate in salary sacrifice, your loan repayments will reduce slightly because they will be based on your lower post-salary sacrifice take-home pay figure.
…you need a financial reference to get a mortgage or loan?
If you participate in salary sacrifice, your payslip will look slightly different. The salary sacrifice amount will be shown as an adjustment with brackets around it under the Pay & Allowances column on your payslip, to show that you are participating in salary sacrifice. Your P60 (the summary of your pay and the tax that has been deducted from it in the tax year, which Nestlé provides you after the end of each tax year) will reflect your reduced post-salary sacrifice take-home pay. You should bear this in mind if using your P60 for a financial reference (e.g. a loan). If you require a reference for mortgage or loan purposes, Nestlé will tell lenders about your Reference Salary. Lenders are interested in your disposable income and so should take into account the fact that no pension contributions are being deducted from your post-salary sacrifice take-home pay.
…Nestlé decides to end salary sacrifice in the future?
Salary sacrifice is a voluntary arrangement, which Nestlé could choose to stop offering at any time. At present, we intend to operate salary sacrifice indefinitely. However, we reserve the right to withdraw salary sacrifice if tax, NI or pensions law changes or if it is no longer commercially viable to operate salary sacrifice. If this happens, you will simply go back to making pension contributions and AVCs directly from your own pay. You would not have to repay any of the savings received whilst salary sacrifice was in force.