FAQ

Information on PensionSMART

Information on PensionSMART, the arrangements for contributions to the Universities Superannuation Scheme (USS) and The Superannuation Arrangements of the University of London (SAUL).

These FAQs must be read in conjunction with the PensionSMART Supplementary terms and conditions of employment [pdf]‌. You should also read the general material and FAQs concerning  salary sacrifice

Useful links - PensionSMART Terminology 

Frequently Asked Questions

How does PensionSMART work?

a. You enter into a formal salary sacrifice agreement with the College, so that you do not pay the standard member contribution to the pension scheme.

b.  The College instead pays an increased employer contribution equivalent to the sum of the normal employee’s and employer’s contributions, as set out in paragraph 2.1 of the PensionSMART supplementary terms and conditions of employment. This contribution is paid directly by the College into the pension scheme.

c. Your salary is reduced by the amount set out in paragraph 2.1 of PensionSMART Supplementary terms and conditions of employment [pdf]. This revised salary (together with any non-pensionable pay to which you may be entitled) is known as your “Adjusted Salary”.

d. Your take home pay increases because your National Insurance Contributions (NIC) are reduced.  The College makes NIC savings in the same way.

e. The overall level of contributions to the pension scheme do not change as a result of participating in PensionSMART.

f. Your level of pension benefits is not affected.  The pension you draw on retirement is unchanged.

g. Additional Voluntary Contributions (“AVCs”). In certain circumstances, the Pension Schemes also allow employee’s additional voluntary contributions (AVCs) to be made through salary sacrifice arrangements such as PensionSMART.  Where this is permitted, the salaries of employees who choose to make such contributions will be reduced by the percentage of Pensionable Salary chosen for the permitted AVC, in exchange for which the College will make an equivalent contribution to the relevant pension scheme.  Where this is not permitted by the relevant pension scheme,
 your AVCs will continue to benefit from income tax relief, but not the NIC saving available under PensionSMART. Please see the relevant pension scheme web-site or the College pensions office web-site for further details of AVCs.

Example 1: USS The example below compares the position of an employee who has not joined PensionSMART with one who has, in both cases using a Pensionable Salary of £33,000 per year contributing £2,640 (being 8.0% of Pensionable Salary) per year into USS. The employee is not in receipt of any pensionable allowances. Under PensionSMART the employee’s Pensionable Salary remains at £33,000 and the PensionSMART Salary (i.e. after the adjustments described above) is £30,360.

Salary comparison

Not in- PensionSMART

 

In PensionSMART

 

Pensionable Salary

£33,000.00

Pensionable Salary

£33,000.00

Less Pension Contributions

(£2,640.00)

Less PensionSMART

(£2,640.00)

   

PensionSMART Salary

£30,360.00

Less Income Tax

(£3,872.00)

Less Income Tax

(£3,872.00)

Less NIC

(£2,992.80)

Less NIC

(£2,676.00)

Net Take Home Pay

£23,495.20

Net Take Home Pay

£23,812.00

The employee’s net take-home pay has increased by £316.80 per annum from £23,495.20 to £23,812.00. Total contributions to the USS have remained the same and the member’s pension benefits will continue to be based on their Pensionable Salary, £33,000.

Example 2: SAUL

The example below compares the position of an employee who has not joined PensionsMART with one who has, in both cases using a Pensionable Salary of £25,730 per year and thus contributing £1,543.80 (being 6.00% of the Pensionable Salary) per year into SAUL. The employee is not in receipt of any Other Pensionable Pay Elements. Under PensionSMART the employee’s Pensionable Salary remains at £25,480 and the PensionSMART Salary is £23,951.20.

Salary comparison

Not in PensionSMART

 

In PensionSMART

 

 Pensionable Salary

 £25,730.00

 Pensionable Salary

 £25,730.00

 Less Pensions Contributions

(£1,543.80) 

 Less PensionSMART

 (£1,543.80)

   

 PensionSMART Salary

 £24,186.20

 Less Income Tax

 (£2,637.24) 

 Less Income Tax

 (£2,637.24)

 Less NIC

 (£2,120.40)

 Less NIC

 (£1,935.14)

 Net Take Home Pay

 £19,428.56

 Net Take Home Pay

 £19,613.82

The employee’s net take-home pay has increased by £185.26 per annum from £19,428.56 to £19,613826. Total contributions to SAUL have remained the same and the member’s pension benefits will continue to be based on their Pensionable Salary i.e. £25,730.

By how much will my take home pay increase?

The increase in your take home pay under PensionSMART depends upon which pension scheme you belong to, your pensionable salary, and the rate at which you pay NICs.  Ready reckoners are provided for each pension scheme. Please note that if you also participate in other salary sacrifice schemes, such as for childcare, the NIC savings may not be as great as is suggested in the ready reckoner. Participation is still worthwhile, however, and a generic explanation of how to calculate the savings is provided in the general material and FAQs concerning  salary sacrifice.

What does Pensionable Salary mean?

The term "Pensionable Salary" refers only to pay which counts for pension purposes.  It comprises the sum of basic salary plus any other pensionable pay elements to which you are entitled before the reduction described in column A of the table in paragraph 2.1 has been applied.  It does not include non-pensionable pay elements.

Will my Pensionable Salary remain the same?

Yes.  Your Pensionable Salary is made up of your Basic Salary and, for some members, other pensionable pay elements (see the Terminology section for examples). U nder PensionSMART, Pensionable Salary will continue to be calculated as at present, i.e. the sum of your Basic Salary a nd any pensionable pay elements before the PensionSMART reduction, and therefore will not change.

What about if I am asking for a reference for a mortgage or a loan?

The College will advise lenders of your annual contractual salary before the PensionSMART adjustment has been made. 

Will I still get the same pension at retirement?

Yes. Your pension at retirement is determined by the terms of the scheme, reflecting the total contributions made during the period of membership. Pensionable Salary is not affected by the introduction of PensionSMART therefore your pension benefits will be unchanged.

If I participate in PensionSMART will it affect future pay increases or any other payments?

Not at all.  All future pay rises will continue to be based on your annual contractual salary (i.e. before the PensionSMART adjustment has been made).  Similarly, all pay calculations which are derived from Basic Salary e.g. overtime, will also continue to be calculated on your annual contractual salary. 

Is this a change to my terms and conditions?

Yes. By joining PensionSMART you agree to amendments to your Terms and Conditions in accordance with the provisions of Section 4 of the Employment Rights Act 1996. These are set out in the PensionSMART Supplementary terms and conditions of employment [pdf]. It is important that you understand the changes to your Basic Salary and other pensionable pay elements (if any).  If you are eligible to participate in PensionSMART, you will automatically be included. However, we must emphasise that you do have the right to opt out of the arrangement. 

Do I have to do anything to participate, e.g. sign any forms?

You do not need to complete any forms to participate in PensionSMART. You will be included automatically unless it may not be beneficial for you and you fall into one of the following categories:

a. Participation in PensionSMART would bring your Adjusted Salary (after the PensionSMART reduction) to below the National Minimum Wage (therefore you are not eligible to participate);

b. Your Adjusted Salary after taking into account PensionSMART would fall below the Lower Earnings Limit for NICs.

What if I do not want to participate in PensionSMART?

When first joining the College you can opt out by ticking ‘No’ on the ‘Pension and Payroll Details Form’ which you will receive with your Contract of Employment. 

Otherwise, you can leave PensionSMART on the annual scheme anniversary date of 1 December each year by requesting an opt-out form from the Pensions team at pensions@imperial.ac.uk.  Completed opt-out forms should be returned to the Pensions team no later than 30 November each year.

If you choose to opt out of PensionSMART you will still be able to participate in the pension scheme and make pension contributions under the usual arrangements. You will not, however, be able to take advantage of the NIC savings resulting in an increase in take home pay which is achievable through participating in PensionSMART.

What if I change my mind or a lifestyle event occurs?

By participating in PensionSMART, you are agreeing to stay in the scheme for at least a year. If you no longer wish to be part of PensionSMART, you will be able to opt out with effect from 1 December each year.

Additionally you will be able to opt out within three months if you experience one of the following “lifestyle events”:

  • Birth/adoption of a child
  • Notification or commencement of maternity leave
  • Return from maternity leave
  • Divorce/separation
  • Death of a partner
  • Marriage/civil partnership
  • Commencement of or return from long term sickness
  • Significant changes in working hours e.g. move from full-time to part-time
  • Material changes in partner’s circumstances (e.g. redundancy)
  • Commencement of or return from sabbatical or unpaid leave
  • Commencement of or return from an overseas secondment
  • Reaching State retirement age
  • Leaving the pension scheme.
  • Cease to be eligible to participate in the pension scheme.

In these cases you may opt in or out of PensionSMART at a time other than the usual December anniversary date. Should you wish to opt in or out you should contact the Pensions team at pensions@imperial.ac.uk as soon as reasonably practicable within 3 months of the event occurring.

What if I opt out of PensionSMART but then wish to opt back in?

If you decide to opt out of PensionSMART you will next have the opportunity to review your decision and elect to participate again in PensionSMART with effect from any subsequent 1 December. You will also be able to elect to participate in PensionSMART if you experience one of the “lifestyle events” listed in the previous answer or one of the additional changes listed below:

  • Moving from a fixed term contract to an open-ended contract
  • Becoming eligible to join the pension scheme.

Should you wish to re-join PensionSMART after experiencing any of these events, you should contact the Pensions team at pensions@imperial.ac.uk as soon as reasonably practicable within 3 months of the event occurring.

I already participate in a salary sacrifice scheme (e.g. childcare), can I participate in PensionSMART as well?

You will be able to participate in PensionSMART providing your Adjusted Salary is not reduced to below the National Minimum Wage or NAtional Living Wage. We will advise you if you are likely to be affected.  However, if your circumstances change you should contact the Pensions Department.

What about Death in Service Lump Sum and Benefits?

Death in service lump sum and benefits from the pension scheme remain unchanged as a result of PensionSMART.

Are there any circumstances where it may not be advantageous to participate?

It will not be advantageous for you to participate in PensionSMART if any of the following apply to you:

  • Your earnings are close to the National Minimum Wage
  • Your earnings are close to the NIC Lower Earnings Limit
  • You plan to leave the pension scheme within two years of joining and take a refund of contributions

We will not enter you automatically into the scheme if either of the first two categories apply to you and we will contact you separately about this.  However, if you believe that you may fall into one of the above categories, please contact the Pensions team.

What happens if I cease employment with the College and/or leave the pension scheme?

On leaving the College’s employment your participation in PensionSMART will come to an end automatically and without further formality.  If you transfer to another UK university you will be able to continue in membership of USS or, if within London University, in SAUL, but whether or not you can take advantage of the NIC savings offered by PensionSMART will depend upon whether your new employer operates an equivalent salary sacrifice scheme.

If you leave the pension scheme more than two years after joining (whether or not this coincides with the end of your College employment), you will have the choice of:

(i) a deferred pension and lump sum which are payable when you retire, or
(ii) a transfer value, if you elect to transfer your pension fund to another pension arrangement.

If you leave the pension scheme within two years of joining, you have the same options (deferred benefits or a transfer value). However, for scheme members not participating in PensionSMART (i.e. those who opted out), there is also the option of a refund of their employee contributions. If you do not opt out and therefore benefit from PensionSMART, you will not have made any employee pension contributions so if you leave the pension scheme within two years there will be no refund payable to you for any periods of participation in PensionSMART.  If you do think that you may leave the pension scheme within two years of joining, participating in PensionSMART may not be advantageous to you and you may therefore choose to opt out.

Will PensionSMART affect Maternity/Shared Parental/Adoption/Surrogacy Pay?

The College provides College maternity/shared parental/adoption/surrogacy pay over and above Statutory Maternity/Shared Parental/Adoption Pay (SMP, SPP, SAP). Your eligibility for College maternity/shared parental/adoption/surrogacy pay and the level of College maternity/shared parental/adoption/surrogacy pay you will receive depends on your length of service and your terms and conditions of employment (for further details please see the relevant Family Leave policy). Any College maternity/shared parental/adoption/surrogacy pay you are eligible to receive will be calculated based on your Normal Salary therefore you will be no worse off. Unless you opt out of PensionSMART you will continue to exchange an amount equivalent to the standard employee contributions from your maternity pay during any period you are in receipt of College maternity/shared parental/adoption/surrogacy pay, provided that this does not reduce your Adjusted Salary to below SMP/SPP/SAP.

If you are not entitled to College maternity/shared parental/adoption pay for all or part of your ordinary maternity/shared parental/adoption leave you may still be eligible to receive SMP/SPP/SAP (see the Maternity and Family Leave policy available on the HR webpages for further details). Your SMP/SPP/SAP will be calculated based on your Adjusted Salary in line with statutory requirements, however the College will top up the statutory payments so that the amount of pay you receive will continue to be based on your annual contractual salary.  You will therefore be no worse off.

Will PensionSMART affect Sick Pay?

The College provides College sick pay over and above Statutory Sick Pay (SSP). College sick pay will still be calculated with reference to your annual contractual salary and will therefore not be affected by participation in PensionSMART. Unless you opt out of PensionSMART you will continue to exchange an amount equivalent to the percentage set out in paragraph 2.1 of “PensionSMART Supplementary terms and conditions of employment [pdf]”  of your sick pay during any period you are in receipt of College sick pay, provided that this does not reduce your Adjusted Salary to below SSP.

If you are not entitled to College sick pay you may be entitled to SSP. SSP is paid at a flat rate and will not therefore be affected by participation in PensionSMART (providing you earn above the NIC Lower Earnings Limit (see HMRC web-site for current limits). You will therefore be no worse off than at present.


What happens if I transfer to the College from another USS or SAUL Institution?

You will continue in membership of USS or SAUL and will automatically participate in PensionSMART unless it is disadvantageous to you to do so or you opt out

Who can I ask if I have any additional questions?

If you have any additional questions please contact th e Pensions team at pensions@imperial.ac.uk