PENSIONS
How much could you save with a salary sacrifice pension?
Rupert Farnelo ACIPP, Payroll Partnerships Manager, People’s Pension, explains the savings employers and their employees could make with a salary sacrifice pension scheme, and further considerations for businesses
N ow that employer National Insurance (NI) has jumped to 15%, organisations may be exploring ways to save their business money. A salary sacrifice pension could be the straightforward, tax-efficient solution they’re looking for. Pension salary sacrifice means that employees ‘sacrifice’ or voluntarily reduce their gross salary by a set amount. The employer then contributes this waived salary amount directly into the employees’ pension pots as an employer pension contribution. This agreement financially benefits both the employee and the business. How much can an employer save? The business savings depend on the
amount sacrificed per employee. Employers and their employees can unlock substantial savings, and across a large workforce, those NI reductions can quickly add up. Let’s look at some examples of potential savings for employers and their employees when implementing pension salary sacrifice. Example of employer savings The figures in the table below are based on 2025/26 tax year rates. They assume an annual average pensionable pay of £30,000 for each employee, with each employee contributing 5% into their pension. The savings generated can be: l reinvested in the business l allocated to employees to enhance
their pension pots (thereby improving retirement outcomes) l a combination of these options. How much can an employee save? The calculations in the table opposite compare the outcomes of an employee contributing to their pension through relief at source, net pay arrangement and salary sacrifice arrangements in the 2025/26 tax year. Again, in this example, the employee earns pensionable pay of £30,000 a year and contributes 5% into their pension. While the value of the annual pension contribution remains unchanged in these examples, deducting them before calculating income tax (IT) and NI via salary sacrifice reduces the tax and NI paid. As a result, the employee’s take-home pay increases by £120 a year (or £10 a month)*. This additional money can be added to their pension pot as a tax-efficient way to boost their retirement savings.
Number of employees
1
50
500
Make sure it’s right for your business
Salary sacrificed by the employee
£1,500 £75,000 £750,000
Introducing a salary sacrifice pension will impact many areas of your organisation, including human resources, finance, legal and payroll. This impact needs to be considered carefully before implementation to ensure the process runs smoothly.
Employer NI contribution (NIC) rate (2025/26)
15%
15%
15%
Employer’s yearly NIC savings
£225
£11,250 £112,500
| Professional in Payroll, Pensions and Reward | July-August 2025 | Issue 112 44
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