Pension Salary Exchange Guidelines
Branches will recall the introduction of Pension Salary Exchange (PSE) at the start of August 2015, which was supported by the CWU. It continues to cause confusion in the field with many enquiries still being received by the Department since its introduction. The following guidelines are reproduced to assist Branches and members in understanding how PSE works and the potential advantages of taking part in it. PSE introduced a way for eligible employees, who pay National Insurance Contributions (NICs), to increase the amount of money they take home each week or month without changing their pensionable pay, the overall level of contributions made to their pension or the RM benefits they receive. By changing the way pension contributions are made, eligible employees who are enrolled into PSE can make a saving on their NICs. This resulted in an increase in take-home pay, also known as net pay, equal to the NICs that would otherwise have been made on your pension contribution, with RM also paying a lower level of NIC.
If you are a member of the Royal Mail Pension Plan (RMPP) or the Royal Mail Defined Contribution Plan (RMDCP) you would have been automatically enrolled to take part in PSE from the launch date. However, it is important to note that the following conditions should be clearly understood when claiming PSE, which must also meet certain thresholds.
Two checks are performed each time payroll is run to determine whether or not members of a Royal Mail pension plan are eligible to participate in PSE. The first confirms that the individual’s pay has not fallen below the participation threshold of £10,000 per annum (approx. £192 per week) and the second check confirms that the National Minimum Wage (NMW) threshold has been met.
The NMW rates from April 2021 are shown below:Age 23 & above£8.91Age 21 to 22£8.36Age 18 to 20£6.56Under 18£4.62Apprentice£4.30
Due to the rules of NMW, this check is carried out on pay that relates to the specific pay period only i.e. weekly or monthly. For someone receiving overtime, the check is calculated based on when the overtime was worked – not when it is paid. Therefore, any overtime that is paid in the current week, which was worked in a previous week, is not included in the NMW check for PSE for the current week. Instead, a reassessment of the week during which that the overtime was worked will also be carried out to check that the new overtime does not affect the check completed in the week it was worked, for example:
Week 1 – employee does not receive overtime payment, employee works overtime.
Week 2 – employee receives payment for overtime worked during Week 1.
- In Week 1 the NMW check is carried out based on the earnings received that week;
- In Week 2 the NMW check (for Week 2) does not include the overtime (as this was worked in Week 1);
- A reassessment of Week 1 is also carried out to now include the overtime worked in Week 1;
- If the reassessment for Week 1, completed in Week 2, shows paying via PSE would breach NMW, the pension amount from Week 1 will be refunded as PSE and deducted as a net deduction instead;
- Assuming the check for Week 1 in Week 2 shows that paying via PSE would not breach NMW, two amounts will appear on the payslip under PSE on the Payments side (the normal deduction for Week 2 and the refund that relates to Week 1 reassessment) and an amount as non-PSE on the Deductions
Pay for NMW and Threshold check = pay relating to that period only, for example:Weekly Basic Pay£453.50RRIS Area 3£20.00Delivery Supplement£16.14Delivery Supplement£10.20£499.84
NMW Check = £8.91/hr
Pay divided by Hours = £12.44 above NMW.
PSE Threshold Check = £192/wk.
If pay for this period is less than £192/wk, less pension deductions, then this will not meet the threshold.Pay£499.84Normal Pension Contribution£28.40AVC£690.00Below Threshold Check-£218.56
NB– the pension contribution amounts are unaffected by this and the right amount is paid into the pension pot. It can be confusing when overtime is worked every week as due to the above check an employee could see this type of adjustment regularly.
Not all the overtime is pensionable – only the Single Standard Pay Rate (SSPR) element is pensionable for RMDCP and RMPP Pensions. For the P&FS DC Plan, overtime is excluded altogether.
Participation Threshold Check
The participation threshold is £192.00 for weekly and £833.00 for monthly pay. This checks that after pension and Additional Voluntary Contributions (AVCs) have been deducted from the pay received, the amount does not fall below the threshold. If it does, the pension and AVC will be deducted as net deductions and not PSE.
Commonly, when a member increases the amount of an AVC to a high amount, this will cause the net pay amount to fall below the threshold. Therefore, the Pension contributions will fail the check and not qualify for PSE in that week. In the following week, if this is recalculated due to overtime being paid, the employee now does not fail the check, a refund of the original non-PSE deductions is made under the Deductions side of payslip (it shows as a negative amount) and a positive arrears amount as PSE on the Payments side.
Members are encouraged to click on the following link (please ensure you press Ctrl while clicking on it) for further information on the Royal Mail guide to Pension Salary Exchange:
Members are also reminded they can access the Royal Mail Media Library (by pressing Ctrl whilst clicking on the link below) where there are a number of video animations which provide short ‘explainers’ about how the RMPP works and how to understand the annual benefit statement for employees.
Any enquiries in relation to the content of this LTB should be addressed to the DGS(P) Department.
Deputy General Secretary (Postal)