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When it comes to planning for a comfortable retirement, maximising savings potential is crucial. One effective way to do that is through salary sacrifice pension tax relief. It helps employees reduce their tax bills while building bigger pension pots – and it can save employers money too. In this article, we'll cover:
Salary sacrifice is a voluntary agreement between an employee and their employer. The employee agrees to reduce their pre-tax salary in exchange for non-cash benefits.
Common benefits include childcare vouchers, bike-to-work schemes, and workplace pension contributions. By opting for a salary sacrifice arrangement, employees can reduce their taxable income and save on taxes.
Read more in our What is salary sacrifice article to see whether you're missing out.
One of the most popular salary sacrifice schemes involves increasing pension contributions.
When an employee agrees to sacrifice a portion of your salary towards your pension, they're effectively redirecting their pre-tax income. This lowers their overall taxable income and results in tax savings. The tax savings come from lower income tax and National Insurance contributions (NICs).
The employer also saves on National Insurance contributions. They may choose to contribute a part or the entire amount saved to employees pensions.
Find out more in our Salary sacrifice for pensions explained article.
To better understand how salary sacrifice pension tax relief works, consider the following example:
Salary sacrifice pension tax relief is one of the smartest ways to grow retirement savings. It helps employees save more, pay less tax, and gives employers a cost-efficient way to enhance their benefits package.
If you’re an employee, talk to your employer about whether salary sacrifice is available.
If you’re an employer, Penfold can help you implement it seamlessly.
Penfold's workplace pension makes it easy to convert to or set up a salary sacrifice scheme. We handle everything from compliance to payroll support.
Book your free consultation or learn more about our salary sacrifice pension.
Frankie Dewar
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