How payments are made

The way that payments are made into your pension is either through SMART Pensions (also known as salary sacrifice) or after-tax earnings.

If you're not sure how payments are made into the BTRSS, ask BT.

Paying by SMART Pensions
Not paying by SMART Pensions

What are the benefits?

You pay the same amount into your pension as you would if you weren't paying by SMART Pensions
You'll save on National Insurance (NI) contributions and reduce the amount of your earnings that are subject to income tax
You can either increase your take home pay, or you can keep your take home pay the same but put a bigger contribution into your pension

How does it work?

SMART Pensions works like this:

You agree to exchange some of your gross salary so it can be invested in your pension
BT adds their contribution
They put the total amount in your pension

You can choose not to use Smart Pensions to make your pension payments on BT's Your Rewards site.

What does this mean for you?

Have a look at these examples to see how SMART Pensions could work for you. For further information, please see BT’s SMART pension Q&A (Standard Life are not responsible for the content of this document).

Example 1: Basic rate tax payer - earning £25,000 a year

Employee earning £25,000 a year who pays 5% to the BTRSS and gets a further BT payment of 10%.

	Without SMART Pensions	With SMART Pensions
Salary	£25,000	£25,000
Personal Allowance 2019/2020	£12,500	£12,500
SMART contribution	N/A	£1,250
Taxable income	£12,500	£11,250
Tax at 20%	£2,500	£2,250
Pay after tax	£22,500	£21,500
NI Earnings 12% Band £166-£962 p/w**	£41,368	£41,368
NI Earnings	£16,368	£15,118
NI at 12%	£1,964.16	£1,814.16
Net pay	£20,535.84	£19,685.84
Pension contribution	£1,000*	N/A
Take home pay	£19,535.84	£19,685.84
Grossed up tax relief on pension contribution	£250	N/A
Total pension contribution	£1,250	£1,250
Net effect after all tax relief	£19,535.84	£19,685.84

*£1,000 would be deducted from net pay and paid to Standard Life who would add back £250 basic rate tax, making a total of £1,250 invested.

** National Insurance contributions (NI) are currently payable at the rate of 12% on earnings between £166 and £962 per week and at the rate of 2% on earnings above this amount.

Example 2: Higher rate tax payer - earning £50,000 a year

Employee earning £50,000 a year who pays 5% to the BTRSS and gets a further BT payment of 10%.

	Without SMART Pensions	With SMART pensions
Salary	£50,000	£50,000
Personal Allowance 2019/2020	£12,500	£12,500
SMART contribution	N/A	£2,500
Total taxable income	£38,150	£35,650
Tax at 20%	£6,900	£6,900
Higher rate taxable income	£3,650	£1,150
Higher rate tax at 40%	£1,460	£460
Pay after tax	£41,640	£40,140
NI Earnings 12% Band £162-£892 p/w**	£37,926	£37,926
NI Earnings	£41,576	£39,076
NI at 12%	£4,551.12	£4,551.12
NI at 2%	£73	£23
Net pay	£35,015.88	£35,565.88
Pension contribution	£2,000*	N/A
Take home pay	£35,015.88	£35,565.88
Grossed up tax relief on pension contribution	£500	N/A
Total pension contribution	£2,500	£2,500
Higher rate tax relief to be reclaimed from HMRC	£500	£0
Net effect after all tax relief	£35,015.88	£35,565.88

£2,000 would be deducted from net pay and paid to Standard Life who would add back £500 basic rate tax, making a total of £2,500 invested. Further tax relief of £500 would need to be claimed directly from HMRC.

** National Insurance contributions (NI) are currently payable at the rate of 12% on earnings between £162 and £892 per week and at the rate of 2% on earnings above this amount.

Remember these figures are an example. How SMART Pensions works for you will depend on your circumstances and any future changes in NI rules. Tax rules and limits may change in the future. The information here is based on our pension experts’ understanding of the current situation.

Are there any disadvantages?

SMART Pensions might not be right for you if you do not currently pay tax. It’s a change to your terms of employment and could affect your state benefits, other company benefits or your ability to borrow.

If you’re not sure whether SMART Pensions is right for you, seek financial advice.

If you choose not to make your payments through SMART Pensions, your monthly payments will come out of your monthly salary after tax. You’ll pay higher National Insurance (NI) contributions, so your take home pay will be lower.

Standard Life will recover basic rate tax relief (currently 20%) on your behalf from HMRC and add it to your pension savings.

If you pay income tax at the higher rate (currently 40%) or additional rate (currently 45%), you need to claim the additional tax relief yourself. You usually do this by completing a self assessment annual tax return.

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