Gad Harari | Monday 6th March, 2023
Salary sacrifice pensions are a tax efficient way for employers and employees to pay into a workplace pension scheme. They can help employees increase their take home pay and help employers lower their National Insurance contributions.
Salary sacrifice is a government backed scheme to help employers and their workers save on tax. An employee agrees, with their employer, to give up part of their salary in exchange for non-cash benefits. The benefits are not subject to income tax or National Insurance contributions (NICs) so their taxable salary is reduced.
In a salary sacrifice arrangement, employees agree to give up a part of their earnings, reducing their overall salaries. The employer agrees to pay these ‘sacrificed’ earnings directly into employees workplace pensions.
By reducing salaries, both employees and employers are subject to lower National Insurance contributions. This means they pay less tax and get to keep more of what they earn overall.
Let's say you offer a salary sacrifice pension to your employees and one of your employees earns £50,000 a year.
Here's an example of how a salary sacrifice scheme works for an employee who earns £50,000 a year.
The savings scale up with employee headcount and can help businesses save money on their National Insurance bill.
Based on an average salary of £50,000 with each employee sacrificing the legal minimum contribution of 5% the savings are:
There are many benefits to offering a salary sacrifice pension, including:
Offering a salary sacrifice pension can provide significant benefits for employees as well. Some of the benefits include:
Salary sacrifice can have an impact on anything that is linked to an employee’s salary. Here are a few things that may affect your decision to switch to a salary sacrifice scheme.
Setting up a salary sacrifice pension can be straightforward if your existing provider already provides the option:
If the company’s existing pension scheme does not offer pensions with salary sacrifice there are a few options.
Offering a pension with salary sacrifice can provide significant benefits to both employers and employees.
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