Employers yet to wake up to the benefits of pension salary sacrifice

Most companies are not yet taking advantage of the significant cost savings salary sacrifice programmes can generate, according to reward consultants Mercer.

Results from a recent Mercer web briefing reveal that many of the 200 participants offer salary sacrifice for childcare vouchers, but only 27% offer pension salary sacrifice. However, over 50% of the participants have plans to implement a programme in the next 12 months.

With salary sacrifice arrangements, employees agree to the exchange of earnings for non-cash benefits. The reduction of base salary means both the employer and employee pay less national insurance (NI). Employees can also get a tax saving with certain benefits.

Mercer said that for a pension scheme with 500 members, an average salary of £30,000 and an average contribution of 5%, the total potential company NI saving is approximately £100,000 a year.

Stephen Hempenstall, a senior associate in Mercer’s employee benefits business, said: “Companies are increasingly looking to their benefit programmes for cost savings and are realising that pension salary sacrifice can generate significant savings for both employers and employees.

“With future reduction in the state second pension accrual and increases in NI contributions, pension salary sacrifice will become more attractive to both the employees and the employer.”