As part of a pension salary sacrifice arrangement, you agree to give up a percentage or fixed amount of your salary in order for your employer (for example, your umbrella company), to make a larger contribution to your personal pension pot. Continue reading as our latest article discusses the benefits of pension salary sacrifice.

What is pension salary sacrifice?

In a pension salary sacrifice arrangement, you agree to give up part of your earnings and your employer will then pay these ‘sacrificed’ earnings into your pension pot. You can allocate a set amount or a percentage of your pre-tax earnings towards your pension and the contributions are exempt from tax and National Insurance. You can receive tax relief and save up to £60,000 per tax year or up to 100% of your annual earnings – whichever is lower- and you may also be able to carry forward unused allowance from previous years.

What are the benefits?

Salary sacrifice is a great option if you have additional income you would like to contribute or your goal is to increase your pension for your retirement. The main benefit  is that by sacrificing part of your salary you can increase the amount you contribute to your pension which will allow you to grow your pension fund much faster. As well as saving for retirement, depending on how much salary you choose to contribute and the tax due on your remaining salary, you may find that you increase your take-home pay.

There are also additional tax savings that you can benefit from when you contribute to a pension via salary sacrifice. For example, an employee’s pension contributions to a workplace pension scheme usually attracts tax relief but it is limited to the highest rate of Income Tax that you pay. Whereas, if a contribution to an employee’s pension scheme is made via salary sacrifice, there is no tax or National Insurance due on the value of the contribution. Additionally, as your remaining salary is reduced, both employees and employers are subject to lower National Insurance contributions. There is also less Income Tax due on the remaining salary as it has been reduced.

Things to consider before entering into salary sacrifice

As a salary sacrifice arrangement involves giving up a portion of your salary, there are a few things you should consider:

  • Salary sacrifice can affect employees entitlement to earnings related benefits. This includes things like life insurance or cover as well as borrowing available on mortgages or loans. This is because it reduces your take-home income. However, most providers will take salary sacrifice into consideration.
  • Salary sacrifice may impact the amount of maternity or paternity pay you are eligible for. This is because statutory maternity pay and paternity pay is calculated based on average weekly earnings which will be reduced if your overall salary is reduced.
  • Your entitlement to state benefits such as such state pension may be affected if your salary falls below the level at which National Insurance is due.

Is there a limit to the amount I can contribute?

There isn’t set limits to the amount you can sacrifice and you can choose how much you would like to sacrifice. One of the main benefits of using Churchill Knight Umbrella’s salary sacrifice service is that it is incredibly flexible to use and you can change the amount you would like to contribute each week/month to your pension. For example, if you would like to allocate a bigger amount to your pension one payday and slightly less the next payday, you can. We simply ask you give us 24 hours’ notice.

It’s important to mention that employers cannot offer salary sacrifice if it reduces the employees’ salary below the national minimum wage. You can also benefit from a tax-free pension allowance, which is the total amount that can be paid into your pension plan before a tax charge applies – this is £60,000 for the 2024/25 tax year. However, this includes employer contributions, so ensure the higher contributions doesn’t push you over this threshold.

How do I get started?

If you’re an existing Churchill Knight Umbrella employee or you’re new to contracting through an umbrella company and are interested in adding salary sacrifice to your payroll service, getting started is easy and we’re here to help. All you need to do is provide us with information about your pension provider and the amount you would like to contribute to get started with our salary sacrifice service. If you would like to find out more information, or you’d like to request a tailored take home pay calculation, please call us on 01707 871622.

If you are interested in salary sacrifice but you don’t have a personal pension already set up – don’t worry! Churchill Knight Umbrella has teamed up with specialist Financial Advisors who will contact you at a convenient time to offer you a free consultation. To schedule a consultation, please complete the short form on our website.

Start your pension savings today with Churchill Knight Umbrella

If you are interested in Churchill Knight Umbrella’s salary sacrifice service and would like to start your pension savings today, please give our Sales Consultants a call on 01707 871622. They will provide you with a tailored take-home calculation and answer any questions you may have about the service.

As well as our salary sacrifice service we also have a range of services for contractors and freelancers who are looking for a compliant way to get paid. If you are interested in our industry-leading PAYE umbrella service, our payroll service for drivers or CIS workers, or would like to speak to a member of the team about what we offer, please call us on 01707 871622 or schedule a call for a time that suits you.