You need to consider the following downsides of salary sacrifice:
- Lower life cover (this is because employers generally work out the entitlement as a multiple of salary and salary sacrifice makes that salary lower)
- No short service refunds – all contributions are classed as ‘employer’ so no employee contributions can be refunded
- Lower borrowing available on mortgages (as per life cover the borrowing level is determined by a multiple of a lower salary)
- Entitlement to state benefits eg Statutory Maternity Pay and the State Pension may be affected if your salary falls below the level at which you pay National Insurance contributions.
Salary sacrifice isn’t for everyone – it’s unavailable if it reduces earnings below the minimum wage. From 1 April 2018 this is £7.83 per hour for those who are over 25, known as the National Living Wage.