Salary Sacrifice Explained
Although salary sacrifice (or salary exchange) schemes are well known within the pensions industry, many employees and even some employers are still unfamiliar with how they work. In fact, a 2021 Pensions Age article reported that 63% of savers hadn’t even heard of salary sacrifice, and only 34% of those who had actually understood it. That lack of awareness is costing UK savers an estimated £1.9 billion a year in missed pension contributions.
To put it into perspective:
A UK business with 200 employees, each earning an average pensionable salary of £35,000, could save around £48,000 every year by using salary sacrifice for pension contributions. At the same time, employees could benefit from higher take-home pay or larger pension contributions—at no extra cost.
(Based on a 5% employer pension contribution and the current 15% employer NIC rate.)
In a salary sacrifice arrangement, an employee agrees to reduce their gross salary by the amount they would normally contribute to their pension. This reduces their National Insurance (NI) liability, as well as the employer’s.
The key benefits for employers and employees
- The total pension contribution stays the same (or increases).
- The employee’s take-home pay doesn’t change significantly (only increase).
- The employer’s costs don’t increase.
- Both parties simply save on NI.
Yes, there’s a little setup involved—but that’s where WPD Group comes in. We handle everything, ensuring compliance and making the process painless.
