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Pension salary sacrifice
Generate savings for employees and organisations through salary exchange
What is a pension salary sacrifice?
A pension salary sacrifice, also known as a pension salary exchange, is a tax-efficient way of making pension contributions that benefits both businesses and employees. Employees agree to exchange a portion of their salary for an equivalent employer pension contribution. This reduces their gross salary, which means they pay less National Insurance and tax.
What are the benefits of a pension salary exchange for businesses?
- National Insurance savings: With a reduced salary, your business pays less employer National Insurance, which can either be retained by the business, reinvested into employees’ pension plans or used to fund other employee benefits. Giving you flexibility on how to use your NI savings.
- Enhanced employee benefits: Offering salary exchange makes your benefits package more attractive, helping to retain and attract top talent.
- Support employee retirement planning: By simplifying retirement savings, you’re helping employees secure their long-term financial future
What are the benefits of a pension salary exchange for employees?
- Savings on National Insurance: With salary exchange, employees pay less National Insurance, leading to increased take-home pay.
- Tax relief: Contributions are typically deducted net of basic rate tax (20%) from net pay, known as ‘relief at source’. Higher and additional rate taxpayers then need to reclaim the additional 20% or 25% tax relief from HMRC. Moving to salary exchange means that these employees receive full tax relief immediately, so administratively easier for them.
- Higher pension contributions: Because of the National Insurance savings, both employees and employers may choose to increase pension contributions without reducing overall take-home pay - helping employees build a larger pension pot for the future.
Pension salary sacrifice: Preparing for changes in 2029 while securing savings today
Our latest salary sacrifice webinar is now available on-demand, exploring:
- How pension salary sacrifice works in practice
- Where the National Insurance savings sit today
- What the £2,000 cap could mean for your long-term costs
- The practical steps you can take now to stay ahead
A valuable employee benefit to help you attract and retain top talent
The employer national insurance savings from this scheme could also be used to help provide other benefits such as private medical insurance (PMI), which our survey revealed was the second most popular employee benefit after pensions.
In other words, in a competitive jobs market, offering desirable employee benefits such as salary sacrifice can be an effective way to help attract and retain talented employees from within your industry.
How Howden can help you
If you want to deliver an employee benefits plan that your employees value, and that helps them feel valued in turn, Howden can help.
Our employee benefits specialists take a flexible, proactive approach to benefits plan design. We’re not interested in one-size-fits-all. Our goal is to ensure that your employee benefits programme is a real reflection of your people and culture, and that it aligns with your objectives as a business.
And, because Howden is an employee-owned company, you can be sure that our people are truly incentivised to deliver the best possible outcome for you as a client. When you succeed as a business, we all benefit. Get in touch with the team today to learn more about salary exchange pensions.