Company Pension Schemes - Salary Sacrifice

A pension scheme is a benefit that should be valued by both employers and employees. For employees, it provides a means to save for retirement and it can often mean their own contributions are topped up or matched by their employer, so there’s more being paid into their pension. For employers, it can help to attract and retain good quality staff. However, it’s not always easy to promote the benefits of a pension scheme to employees. Some employees may think they are too young to start worrying about a pension or maybe some think they can’t afford to start paying into a pension just yet. Salary sacrifice is an arrangement where an employee gives up part of their future earnings or bonus in exchange for a non-cash benefit. As the salary is being ‘exchanged’ rather than paid, the employee does not pay NICs on the exchanged amount. In addition, you won’t pay NICs on the amount of salary exchanged either. The exchanged amount is then paid by you to the pension provider. The contributions are deemed to be an employer contribution. The key reasons to think about salary exchange are:

Salary sacrifice may not be suitable for everyone. It’s important you and your employees are fully aware it is a legally binding contract you are entering into and think about the impact a reduction in salary will have.

Other areas you may wish to consider as part of your Corporate Financial Planning are: