What is Salary Sacrifice?

Some employers offer employees the chance to make pension contributions through ‘salary sacrifice’. This means that the employer agrees to reduce the employee’s earnings by the amount equal to the pension contributions as a way of making the contributions.

The advantages of this are that both parties save on National Insurance, while the employee can also save on tax and child benefit tax charges, depending on the amount they earn. However, salary sacrifice can reduce the amount of income taken into account when you apply for a mortgage, making it harder to get a large loan.

Related terms
What is a Self-Invested Personal Pension (SIPP)
What is a Workplace Pension