Pensions in 30: 26. Salary sacrifice and pensions

The Month in Pensions - Gowling WLG

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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