“Salary sacrifice”, sometimes referred to as “salary exchange”, is one of the more efficient ways to help your staff save for retirement, while also cutting down on National Insurance (NI) costs.
 
Simply put, it involves your employees agreeing to reduce their gross salary by a certain amount, which you then pay directly into their pension.
 
Since contributions are taken before Income Tax and NI are calculated, both you and your team can save money.
 
Keep reading to discover some of the other benefits of salary sacrifice for both you and your employees, and to learn about some of the rumoured reforms to the scheme.
 
Salary sacrifice has several benefits for both you as an employer and your employee

When one of your employees reduces their gross salary, you also pay less NI as a result. This means your business makes direct savings from the scheme.
 
Some employers might even choose to reinvest part, or all, of those savings into employees’ pensions, which can significantly improve the benefits your company offers.
 
In fact, this move could help you:
•    Stand out in a competitive market
•    Boost employee morale and loyalty 
•    Retain valuable staff by improving their long-term financial security.

The scheme is also relatively straightforward to run. Most payroll providers can set it up quickly and, once in place, it requires little ongoing management.
 
Read more: Think introducing a salary sacrifice scheme is more trouble than it’s worth? Think again

From your employees’ perspective, salary sacrifice automatically applies the maximum pension tax relief they’re entitled to.
 
Higher- and additional-rate taxpayers often miss out on the extra relief they can claim through self-assessment.
 
Yet, with salary sacrifice, they receive it in full without the hassle of additional paperwork.
 
This means they may have more disposable income available now, and a potentially larger pension fund later down the line.
 
Additional financial security could also reduce any money-related stress, having a positive effect on the wellbeing of staff, and their productivity.
 
In turn, this could help reduce absences, improve engagement, and foster greater loyalty for the company.

There have been rumours of government reforms to the salary sacrifice scheme

Recent reports have suggested that the government may be considering limiting, or even removing entirely, the NI savings linked to salary sacrifice for pensions.
 
While no concrete decisions have yet been made, such changes could increase your employment costs and make the scheme less attractive for both you and your employees.
 
The reforms might even lead to lower pension contributions across your workforce.
 
Higher earners, who tend to benefit more from the automatic higher- or additional-rate relief salary sacrifice provides, could feel the most significant effects.
 
Read more: Why now may be the ideal time to embrace salary sacrifice

Given the uncertainty, it might be worth acting now to introduce your scheme while the current rules remain in place.

Professional support could help you plan ahead

Even if you already offer salary sacrifice, now could be the ideal time to review it. Otherwise, this could be an opportunity to explore how it might benefit your business. 

At Titan, we could help you:
•    Assess whether salary sacrifice is right for your business
•    Calculate the potential NI savings you could make
•    Design a scheme effectively so employees understand it
•    Stay abreast of any government changes. 

Get in touch
To learn how salary sacrifice might help your business and benefit your employees, please email [email protected] or call us on 0800 048 0150.

Please note
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy. All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
 
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
 
Workplace pensions are regulated by The Pension Regulator.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.