What is salary sacrifice for pensions and how can it benefit you?

What is salary sacrifice for pensions and how can it benefit you?

Sacrificing your salary may not seem all that productive initially. However, salary sacrifice is a wise tactic for employees to utilise – particularly when it comes to their pensions. This guide details what salary sacrifice for pensions is, along with how you can personally benefit from this scheme.

What is Salary Sacrifice for pensions?

If you want to save on tax contributions, one way of doing this is through salary sacrifice for pensions. This is a government-backed scheme where, if an agreement is made with your employer, you sacrifice a portion of your salary for it to end up in your pension pot.

For example, you could sacrifice £200 of your salary each month, turning this into pension contributions. Another added impact of this is that it reduces your National Insurance contributions (NICs). Lower NICs are also a positive knock-on effect for your employer.

While the name might suggest otherwise, salary sacrifice allows you to retain more of what you earn while contributing to tax savings.

How does Salary Sacrifice for pensions work?

The benefits of Salary Sacrifice pensions only works if your employer agrees to the scheme. It is estimated only about 40% of small and medium-sized enterprises provide salary sacrifice, which means it is far from prevalent currently.

If you are employed and not currently enrolled in a salary sacrifice scheme, it’s possible for employers to rearrange the terms of your employment contract. Once you agree to the contract change, you will start sacrificing an agreed portion of your wages for your pension.

The Benefits of Salary Sacrifice pensions?

Aside from pension-related advantages, there are other workplace benefits you can often enjoy through a salary sacrifice scheme. These benefits include:

  • Childcare vouchers: A certain number of tax-free vouchers can be put towards childcare each month.
  • Company car schemes: A company car is typically leased by the employer for the employee, with a part of their salary going towards vehicle ownership.
  • Technology equipment: Offered either at a reduced cost or tax-free, this equipment – used for work purposes – can include computers, tablets, and smartphones.
  • Cycle-to-work schemes: Salary sacrifice can be used and put towards a bike and cycling-related accessories.


Tax savings and increased retirement savings through Salary Sacrifice for pensions

While numerous employee benefits are up for grabs, it is most notable with pension contributions. This is because it supplies a number of benefits all rolled up into one.

Tax savings is the most notable advantage. Your National Insurance contributions are lower. Additionally, lowering your gross salary reduces your tax liability and how much money goes towards your tax bill. Furthermore, you are putting more money into your pension pot, ultimately increasing your retirement savings. Learn more here. 

Considerations for your pension pensions

With salary sacrifice for pensions, you have to consider that you will be earning less money from your monthly payslip. This can take some adjustment if you are spending most of your wages each month.

You also have to think about how much you will contribute towards your pension. The more money you add, the better it is from a tax point of view and your retirement. However, you also have to think about the present and how it can impact your current living situation. Additionally, the lower earnings on your payslip may have an adverse effect on the ability to borrow money as it may affect affordability calculations.

Salary sacrifice and iSIPP

By working with iSIPP, you can maximise your tax savings and pension pot, Get in touch for more information.


There are multiple benefits of a Salary Sacrifice pensions you can experience. If this is not currently offered by your employer, make sure to discuss it with them and explain the advantages for everyone involved.




The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

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