Salary Sacrifice Pension Contributions

  A widely used type of salary sacrifice is where an employer offers each employee the opportunity to give up ('sacrifice') an amount of money from their gross pay in order to have an increased amount contributed into their pension pot. The employer will pay the amount sacrificed, together with the employer's pension contribution, into the employee's pension pot. Over 70% of organisations operate a salary sacrifice pension contribution arrangement.

  Typically, a salary sacrifice pension contribution arrangement results in the employee paying less in tax and in National Insurance.  For a basic rate taxpayer, the tax saving is usually 20% of the amount sacrifced.

  The employer's liability to pay Employer's National Insurance may be reduced due to the employee's salary sacrifice. The employer may, at their discretion, contribute into the employee's pension pot some of that reduction.

   An employee invited to opt in to the arrangement may be advised to bear in mind that a reduced salary level could have an impact on decisions made by mortgage providers and other lenders which use salary level as one of their criteria. It may also affect maternity/paternity pay and additional state benefit entitlements. The arrangement should not reduce an employee's cash earnings to below the National Minimum Wage hourly rate.

   If an employer is considering setting salary sacrifice pension arrangement, they will communicate with the employees and liaise with the pension scheme provider about the details of the proposed scheme. The employee's employment contract would need to be changed ('varied') in advance, requiring the employee's consent. The varied contract would allow the employee to opt out of the arrangement in the future, for instance after a fixed period of time has elapsed.

 We provide payroll and PAYE services, including looking after the operation of any salary sacrifice arrangement.