Salary Sacrifice

Key Points

  • Under a pensions salary sacrifice arrangement an employee gives up part of their cash salary in return for pension benefits
  • Typically the employee's salary is reduced by the amount that they were previously paying as employee contributions to a pension scheme and the employer pays an equal amount to the pension scheme as an employer contribution
  • Salary sacrifice results in cost savings on National Insurance contributions
  • To introduce a salary sacrifice arrangement an employer needs to vary the terms of the employee's contract of employment
  • As salary sacrifice involves a reduction to the employee's salary, it could have some disadvantages (though most of these can be avoided if the arrangement is set up carefully)
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