Salary Sacrifice Pension Scheme: A Win-Win for Employers and Employees

May 14, 2024

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Did you know that both employers and employees can save money by utilizing a salary sacrifice pension scheme? Surprisingly, nearly 50% of employers have not implemented this arrangement. With the recent increase in National Insurance Contributions (NIC) rates due to the Health and Social Care Levy, there is now a stronger case for employers to consider the benefits of a salary sacrifice pension scheme, which can lead to significant savings of up to 28.3% on employee pension contributions. In this article, we’ll explore the advantages of salary sacrifice pension schemes for both employers and employees, and how Price & Accountants can assist you in implementing this beneficial arrangement.

Understanding the Salary Sacrifice Arrangement

A salary sacrifice arrangement is a mutually agreed agreement between the employer and employee, where the employee willingly accepts a reduction in salary or bonus. In return, the employee receives a valuable benefit: an equivalent contribution by the employer into their pension scheme. This additional employer contribution effectively replaces the employee’s pension contribution, resulting in no difference in the overall pension contributions made into the scheme.

Savings for Employees and Employers

Traditionally, employee pension contributions attract tax relief but not NIC relief, meaning that both the employee and the employer have to pay NIC. However, under a salary sacrifice arrangement, no NIC is payable as the employee’s gross pay is reduced. This leads to substantial savings for both parties involved.

For employees, a typical basic rate taxpayer can save 13.25% on their NIC, while employers can save 15.05% on NIC contributions. Additionally, employers paying the apprenticeship levy can save an extra 0.5%. Employees can choose to use these savings to boost their take-home pay or increase their pension contributions. Employers also have the option to share some of these savings by increasing the pension contributions made on behalf of their employees.

R&D Tax Relief

Employers engaging in Research and Development (R&D) activities can benefit even further from salary sacrifice pension schemes. If employees are linked to R&D projects, the entire pension contributions made through the salary sacrifice arrangement become eligible for R&D tax relief. These contributions are considered employer pension contributions and are therefore allowable for R&D purposes, resulting in increased savings for employers.

Consult Price & Accountants for Expert Assistance

In today’s economic climate, employers should consider enhancing their benefits packages to benefit both themselves and their employees. Implementing a tailored salary sacrifice pension scheme requires careful consideration to ensure it suits the needs of both parties involved. At Price & Accountants, our experienced team of accountants and tax advisors in London can provide you with the guidance and support needed to navigate salary sacrifice arrangements effectively. We offer personalized advice and assistance in all tax-related matters, including tax planning.

Contact our team today to explore the feasibility of a pension salary sacrifice arrangement. We provide a no-fee obligation basis consultation to determine the potential benefits for both employers and employees. Let us help you optimize your pension contributions and achieve financial advantages for your business and workforce.