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Pensions

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Salary Sacrifice

This page explains salary sacrifice pension schemes

Salary Sacrifice - What is it?

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit such as pensions or Cyclescheme.
The overall effect is a tax saving on payroll taxes such as National Insurance. This can be seen in the table below:

Benefits
The business saves 13.8% on NICs
Employees save on income tax and employees NICs
The business can choose to pass on NIC savings to employees as contributions or keep the savings
If savings pass on to employees they will get a greater pension contribution at no additional cost to the business
There is no increased pension contribution
Disadvantages
Employees have a lower actual salary this may impact mortgage applications, benefit applications or other cover.

Table showing impact of Salary Sacrifice

The below tables shows the overall impact of salary sacrifice on a higher rate employee at £49,000.
The scenario’s presented are if the Company passes on the saving (scenario 1) or the Company keeps the NIC saving (Scenario 2)
1
Scenario 1 -Before salary exchange - saving to employee
Scenario 1 - After salary exchange - Saving to employee
Scenario 2 - Before salary exchange - Savings retained by Ori
Scenario 2 - After salary exchange - Savings retained by Ori
2
Salary
£49,000.00
£46,117.00
£49,000.00
£46,550.00
3
Employee
4
Pension contribution
£2,450.00
£0.00
£2,450.00
£0.00
5
Income tax payment
£7,286.00
£6,709.00
£7,286.00
£6,796.00
6
NIC
£4,731.00
£4,385.00
£4,731.00
£4,731.00
7
Employer
8
Pension contribution
£2,450.00
£5,730.00
£2,450.00
£4,900.00
9
NIC
£5,542.00
£5,144.00
£5,542.00
£5,204.00
10
Outcome
11
Employee take home pay
£35,022.00
£35,022.00
£35,022.00
£35,316.00
12
Total pension contributions
£4,900.00
£5,332.35
£3,920.00
£4,900.00
13
Cost to employer (including salary)
£56,992.00
£56,992.00
£56,992.00
£56,654.00
There are no rows in this table
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