What is salary sacrifice
Most UK employers now offer salary sacrifice as an option when making pension contributions. However the vast majority of people that I speak to are unsure what it means and what the benefit is.
With a normal Workplace pension contribution, you will save your employers national insurance and you will also save some income tax. With salary sacrifice the contribution is made by the employer and it reduces your salary down.
Employers have to pay employers national insurance on any salary that they pay to you, this is normally 13.8%. Making a pension contribution via salary sacrifice allows the employer to save that 13.8%. The benefit for you is that many employers will put that 13.8% directly into your pension rather than pocketing for themselves.
This means that your pension contributions may be able to increase by 13.8% just by joining a salary sacrifice scheme. If you want to find out whether your company offers a salary sacrifice scheme the best people to contact is usually your HR department. When you speak to them you should ask about the salary sacrifice scheme and whether the employer national insurance contributions go into your pension pot or not.
Whilst salary sacrifice sounds like a great idea for most people, there are some things that you need to consider. Firstly with salary sacrifice you cannot be paid less than the minimum wage and secondly, you need to ensure that you are happy to continue to make pension contributions regardless of your personal situation as it usually involves contractual change to reduce your salary down and so you can’t opt out of it once you’ve joined.
The best approach is to do your research and understand what you can and cannot afford to do with pension contributions and then speak to your individual employer to work out what they can offer and how you can maximise the benefits that they offer.
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