‘Salary sacrifice’ (also called ‘salary exchange’) is an arrangement employers may make available to employees – the employee agrees to reduce their earnings by an amount equal to the employee’s pension contributions.
In exchange for reducing the amount of earnings paid to employees, the employer then agrees to pay the total pension contributions – from the employee and the employer. Any contributions paid to us will be treated as employer only.
Using salary sacrifice means that the employee and employer pay less National Insurance contributions. Employers may decide to maximise the amount of pension contributions by adding the savings they make in lower employer National Insurance contributions to the total pension contribution amount they’ll pay.
Salary sacrifice affects the employee’s terms and conditions of employment and is a matter of employment law, not tax or pensions law. Employers using salary sacrifice should take specialist employment advice on how best to vary the employment contract.
More information on salary sacrifice/salary exchange can be found on:
- The Pensions Regulator website in detailed guidance section 4