Salary Sacrifice Pensions Explained: How They Work and Why They Matter
Salary sacrifice pensions are one of the smartest, most tax-efficient ways to boost your retirement savings - and they’re simpler than they sound. At Thrive, we believe in making financial wellbeing feel achievable.
Here’s everything you need to know about salary sacrifice pensions: how they work, why they matter, and how you can make the most of them.
Essentially, salary sacrifice is an agreement between you and your employer. You agree to exchange (or “sacrifice”) a portion of your gross salary. In return, your employer pays that amount directly into your workplace pension scheme.
Because your salary is technically lower, you pay less in National Insurance Contributions (NICs). Your employer saves on NICs too - and many pass some of those savings straight into your pension. It's a smarter way to grow your pension, whilst reducing your NI and potentially your income tax bill.
Here's a simple example:
You pay less tax and National Insurance, and your pension receives the £2,750 you’ve sacrificed - plus potentially an extra boost from your employer.
Here is a more in depth look at what it means for you take home pay as well as your pension:
To work out what salary sacrifice may look like for you, use our pension calculator available here.
1. Lower Tax and National Insurance -Reducing your salary means you pay less in NICs and, depending on your earnings, less income tax.
2. Bigger Pension Savings - More money is being paid into your pension pot, helping it grow faster without impacting your lifestyle.
3. Employer Contributions - Employers may add the NI savings they make back into your pension, giving your retirement fund an extra boost.
4. Future Financial Security - Small changes now can make a big difference later. Salary sacrifice helps build a more secure, confident future.
Salary sacrifice isn’t just a win for employees - it offers major value for employers too.
Employers save on NICs for every employee who takes part in salary sacrifice. These savings can be reinvested into the business or used to enhance employee benefits.
Offering salary sacrifice demonstrates a commitment to employee financial wellbeing, without raising salaries. It’s a high-impact, low-cost perk that helps you stand out.
Financial wellbeing is a growing priority. Salary sacrifice helps you attract top talent and retain current staff by offering practical, meaningful support.
With the right partner, salary sacrifice is easy to roll out and manage. Thrive’s platform ensures compliance, handles payroll integration, and provides a clear pathway for your team.
While salary sacrifice offers major benefits, there are a few things to keep in mind:
Always check how salary sacrifice affects your overall financial situation before opting in.
At Thrive, we make setting up and managing salary sacrifice easy for both employers and employees.
Our platform:
Whether you’re an employer wanting to offer smarter benefits or an employee ready to take control of your future, we’ll help you get started.
Log in to Thrive today or speak to your HR team to get started.
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