Gad Harari | Friday 21st April, 2023
When it comes to planning for a comfortable retirement, maximising savings potential is crucial. One effective way to achieve this is with salary sacrifice pension tax relief. By understanding this strategy and how it works, pension savers can enjoy reduced taxes while bolstering their retirement pot. In this article, we'll explore:
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:
Claiming tax relief with a salary sacrifice pension is an effective strategy to both maximise retirement savings and reduce tax. By understanding how it works and the benefits it offers, its easier to make informed financial decisions.
Employees interested in salary sacrifice pension schemes should speak to their employer. By implementing salary sacrifice they can start growing their pension pot and save on tax.
Use our salary sacrifice pension calculator. You'll see how much businesses and employees can save by switching to a more tax efficient pension scheme.
Penfold's tech-first workplace pension makes it easy for employers to set up or convert to a salary sacrifice pension.
Speak to a Penfold salary sacrifice expert. A member of our team will explain how to save money with tax efficient pension contributions at your business.
Engage, attract and retain the best talent with a tech-first pension that helps your team secure their financial future.Speak to an expert