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Salary Sacrifice (Pensions)

Salary Sacrifice (also known as Salary Exchange) is currently on of the most tax efficient ways for an employee to structure how they pay their pension contributions.

Different forms of Salary Sacrifice exist, for example: Cycle to Work Scheme.  At Which Way Financial Solutions we look at how it can be used with pension contributions and would suggest if you are interested in other applications that you speak with a specialist employment tax accountant.

This can be applied to regular and single pension contributions as well as a way of receiving a bonus (this is known as Bonus Sacrifice).

How Does It Work?

  • It is a contractual agreement between the employer and an individual employee (forms part of the contract of employment)
  • An employee’s pay is reduced, each pay period (reducing the amount of tax due from both an employer and employee); in return the employee receives an increased pension contribution from their employer
  • The employer decides how to structure the tax savings
  • Possible benefits include the employee having a slightly higher net take home pay (after exchange) and the employer sharing the employer National Insurance Saving (currently in 2015/16 tax year 13.8%) in someway with the employee
  • Both parties can be better off under Salary Sacrifice

There are a lot of factors to consider before deciding whether Salary Sacrifice is right for an employer to offer to staff.  Similarly to Automatic Enrolment the key is to understand the position and options and then design your own set of rules.

Which Way Financial Solutions can help you to understand the options and help you to work out whether Salary Sacrifice is right for you and how to implement your chosen strategy as well as then reviewing it to ensure that it is still working correctly.

What next?

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    Areas of concern
    Workplace PensionsAutomatic EnrolmentProtection (Life/Health)WellbeingDrawing Benefits (Pension Freedom)Employee Education & EngagementOther

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