Salary sacrifice and pensions
Produced in partnership with Rebecca McKay of Trowers & Hamlins LLP
Salary sacrifice and pensions

The following Pensions practice note produced in partnership with Rebecca McKay of Trowers & Hamlins LLP provides comprehensive and up to date legal information covering:

  • Salary sacrifice and pensions
  • What is salary sacrifice?
  • Why salary sacrifice?
  • Employer
  • Employee
  • Implementing salary sacrifice
  • Effective arrangement
  • Variation to employment contract
  • Opting in and out of a salary sacrifice arrangement
  • Scheme trust deed and rules
  • More...

Salary sacrifice and pensions

CORONAVIRUS (COVID-19) UPDATE: Salary sacrifice arrangements may be affected where employers furlough their staff through the Coronation Job Retention Scheme (CJRS). For further information, see Practice Note: The Coronavirus Job Retention Scheme—the pensions implications — Impact on salary sacrifice arrangements.

What is salary sacrifice?

Salary sacrifice is an arrangement whereby an employee gives up the right to a certain amount of his taxable salary due under his contract of employment in return for the employer’s agreement to provide an additional pension or some other non-cash benefit, usually resulting in advantageous tax and/or National Insurance Contributions (NICs) treatment. An employee may also sacrifice some or all of any one-off payment such as a bonus.

The 'sacrifice' is achieved by varying the employee’s terms and conditions of employment relating to pay; for example:

An employee’s current contract provides for cash remuneration of £40,000 a year with no benefits. The employee agrees with the employer that for the future the employee will be paid cash remuneration of £34,800 a year and 52 childcare vouchers a year, each with a face value of £100.

The most common non-cash benefit received in exchanged for the sacrificed salary will be a contribution to a pension scheme.

Why salary sacrifice?


Under a salary sacrifice arrangement an employer may make a saving in NICs, as this is paid on an employee’s

Popular documents