The first in our series of three corporate financial planning articles by Nick Brazier, Corporate Specialist at Ascent Consulting, (also part of the Purposeful Group).
What Is Salary Sacrifice?
Salary sacrifice (also known as salary exchange) is a straightforward arrangement where an employee agrees to give up part of their gross salary, and the employer pays that amount directly into their pension. Because the contribution is taken before Income Tax and National Insurance (NI), both the employer and employee benefit from meaningful savings.
How Much Can Be Saved?
Salary sacrifice can create significant efficiencies for both sides. Here’s how it looks in practice:
Employee Example
• Salary: £38,116 (ONS Average Weekly Earnings)
• Pension contribution via sacrifice: 5% (£1,900)
• NI saving: £150 per year (£12.50 per month)
Employer Annual Saving Example
• NI saving per employee: £300
• 50 employees: £14,293 saved
• 100 employees: £28,587 saved
• 500 employees: £142,935 saved
• 1,000 employees: £285,870 saved
These figures are based on a £38,116 salary and a 5% pension contribution.
Changing in 2029?
From April 2029, NI savings will only apply to the first £2,000 of sacrificed pension contributions per year. Contributions above this threshold will still benefit from Income Tax relief, but NI savings will be capped.
Despite the changes there are still some great reasons to adopt Salary Sacrifice in your business
• Lowers employees’ taxable income, which can help them stay below key tax thresholds
• Enhances the overall employee benefits package
• Reduces employer payroll-linked costs (e.g., Apprenticeship Levy, some insurance premiums)
• Streamlines pension administration through payroll
• Supports long-term employee financial wellbeing
• Allows employers to reinvest NI savings back into staff pensions
• Encourages a stronger savings culture across the workforce
If you would like to discuss corporate financial planning for your business, we are happy to work with Nick, alongside your Financial Planner to offer specialist advice.
This article is provided for information purposes only and does not constitute personal financial advice or a recommendation. Pension contributions are investments, and their value may fall as well as rise. Past performance is not a reliable indicator of future results. Tax treatment depends on individual circumstances and may change in the future. Employees and employers should consider seeking regulated financial advice before making decisions about pension arrangements.