In this episode of Yahoo Finance Future Focus, our host Brian McGleenon sits down with Scottish Widows Workplace Savings Specialist Susan Hope to discuss the advantages of salary sacrifice, also known as salary exchange. Despite its misleading name, salary sacrifice does not necessarily mean a pay cut. Instead, it offers a way for employees to increase their pension contributions while potentially maintaining—or even increasing—their take-home pay.
During the conversation, Hope explains how salary exchange works by allowing employees to redirect a portion of their pre-tax salary into their pension. This lowers their taxable income and, as a result, reduces National Insurance contributions for both the employee and employer. The discussion highlights how this arrangement can be used in two key ways: either to boost take-home pay by reinvesting the savings or to significantly grow a pension pot over time.
Hope also outlines the eligibility criteria for salary exchange, explaining that it may not be suitable for everyone, particularly those earning close to the national living wage. However, for those who qualify, the benefits extend beyond pension growth, as the arrangement can also lead to lower student loan repayments and improved tax relief.
From an employer’s perspective, salary sacrifice is an attractive option, as it lowers National Insurance costs and can improve workforce retention by encouraging more employees to save for retirement. With businesses facing rising costs and workers looking for ways to maximise their earnings, salary sacrifice is gaining attention as a win-win strategy that delivers financial advantages for both employees and companies.
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