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05 Dec 2023

How salary sacrifice pensions can also benefit employers

As people continue to feel worried about money, a salary sacrifice pension could be good way for them to keep more of their bonus – and improve their savings

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It’s clear that people continue to feel worried about their financial future, according to Standard Life’s Retirement Voice 2023 research.

Indeed, just 37% of people believe they’re saving enough to give them a comfortable life in retirement. Meanwhile, more than half the country (55%) is worried that their pension savings won’t last their retirement.

As end-of-year-bonus season approaches, the bumper pay day could provide a welcome respite. And for those worried about their financial situation, using salary sacrifice could make their money go further – and help give their financial wellbeing a much-needed boost.

Benefits of a salary sacrifice pension

Because part of an employee’s pay is exchanged under salary sacrifice for a pension contribution, their salary is reduced – meaning they’ll pay less in tax and National Insurance (NI). As a result, they get to keep more of their take-home pay while still saving into their workplace pension.

Employees’ pension pots could grow faster too because both employees and employers can pay the tax savings into the employee’s pension.

Disadvantages of salary sacrifice

Salary sacrifice won’t be suitable for everyone. Having a lower salary could lower the amount that employees can borrow for loans or mortgages. Paying less in NI contributions could also affect their entitlement to benefits such as statutory maternity pay and the state pension.

So, if your organisation offers salary sacrifice, it’s important to communicate all the facts to your employees so they can make a decision that’s right for them.

Bonus sacrifice - an alternative

If employees get an end-of-year bonus, they can use ‘bonus sacrifice’  to put some or all of it into their pension plan.

It effectively works in the same way as normal salary sacrifice, in that the employer pays the amount directly into an employee’s workplace pension scheme. That also means employees can keep more of their bonus, because again they’ll be paying less in tax and NI.

How employers benefit from salary sacrifice

Offering salary sacrifice could be a win-win for both you and your employees.

Employers save on NI contributions too. Depending on how many members are in your workplace pension scheme, using salary sacrifice could lead to tens of thousands of pounds worth of annual NI savings – which could be reinvested back into the business.

Or you could choose to pass these savings onto your employees by paying the money into their workplace pension plan. This could give them peace of mind that they’ll have more money when they retire.

Reduced impact of financial stress

Money worries can affect employees’ mental health, which could have a knock-on effect on their work productivity. Given that a salary sacrifice pension increases employees’ take-home pay, it could provide a much-needed boost to both their pockets and wellbeing.

Standard Life workplace pension scheme members can also get financial wellbeing support through its Money Mindset app. It allows them to see their pay, pensions, and other financial accounts in real time, helping them feel more in control of where their money’s going.

Improved recruitment and retention

While salary sacrifice is a great employee benefit, offering bonus sacrifice in particular could make you stand out from the crowd when recruiting. Employers aren’t obliged to offer it, so if you do, it could be a unique selling point to tempt job searchers.

The same goes for your existing staff too; they’ll be more likely to stay put if you offer a comprehensive and flexible employee benefits package.

For more insights on financial wellbeing, including resources on how you can help support your employees, visit Standard Life’s Financial Wellbeing hub.

In partnership with Standard Life

Standard Life are part of Phoenix Group, the UK’s largest long-term savings and retirement business. We both share an aligned ambition to help every customer enjoy a life full of possibilities.

Contact us today