When you make contributions to your pension through salary exchange, your payslip and P60 will look different.
Here's a worked example for a yearly gross salary of £24,000 to demonstrate:
Before salary exchange - your payslip
| £ |
Gross salary | 2,000 |
PAYE (income tax) | (171) |
Employee national insurance contributions | (144) |
Employee pension contributions | (100) |
Take-home pay | 1,585 |
|
|
Employer national insurance contributions | 174 |
Employer pension contributions | 60 |
After salary exchange - your payslip
| £ |
Employee pension contributions via salary exchange | 100 |
Gross salary | 1,900 |
PAYE (income tax) | (171) |
Employee national insurance contributions | (132) |
Take-home pay | 1,597 |
|
|
Employer national insurance contributions | 161 |
Employer pension contributions | 60 |
You'll notice that your gross salary has changed because you have exchanged £100 of it to contribute directly to your pension. You'll also notice that the amount you pay in employee national insurance contributions has gone down as a result of salary exchange being in place, increasing your take-home pay.
P60s
Your P60 (the summary of your pay and the tax that has been deducted from it in the tax year, which will be provided to you after the end of each tax year) will reflect your take-home pay after salary exchange. You should bear this in mind if using your P60 for a financial reference (e.g. a loan or mortgage).
If you need a reference for mortgage or loan purposes, your employer will be able to tell lenders about your reference salary i.e. your pay before anything is exchanged. However, lenders are interested in your disposable income i.e. your take-home pay, which will stay roughly the same or increase slightly. Read our article on mortgages to find out more: