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Don't miss out! How to use salary sacrifice in your favour

If your auto enrolment pension scheme is now bedded in, or if you have yet to reach your staging date, you should consider how a salary sacrifice scheme could benefit both you and your employees.

Larger employers should now have well-established auto enrolment pension arrangements for their employees in place. At the time of implementation, many focused purely on the auto enrolment requirements. “However, now that these schemes are up and running, many employers are considering whether the opportunity offered by salary sacrifice could improve the overall pension offering and help mitigate the costs of the pension scheme” says Esme Shakeshaft, Head of Moore (South) LLP payroll and partner in our Isle of Wight Newport office.


This is possibly because national insurance contributions are paid on gross pay before pension, while no NIC is due on employer pension contributions. So if employees sacrifice some pay (i.e. agree to reduced gross pay) and ‘flip’ their former pension contribution into an increased employers’ pension contribution, NIC savings can be made.


Esme continues "for higher paid employees in particular who are making substantial pension contributions, the potential cost savings can be substantial. Many employees will aim to contribute around 5% of their salary to ensure they have a sufficient pension pot, and at this contribution level the savings could be worth around 1% of payroll”.  Employees end up with the same pension contribution, but pay less NIC. Employers also pay less NIC, and can keep the saving for themselves or split it with their employees. Either way, everyone benefits.


“Smaller employers who have yet to implement their auto enrolment pension schemes might want to think about introducing salary sacrifice at the same time,” Esme suggests. “We should use the learning experience of the larger employers and aim to benefit earlier from reduced costs.”


If you’d like to find out more about how salary sacrifice could mitigate your pension costs, or wish to discuss the impact automatic enrolment will have, get in touch with Esme Shakeshaft, Head of Moore (South) LLP payroll and partner in our Isle of Wight Newport office.


Esme Shakeshaft
01983 824812