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        Updated: April 15, 2024

        Salary Sacrifice Pension: The Pros and Cons

        Salary sacrifice is a good method for saving into a pension but it may not be the right route for everyone. Find out about all the pros and cons in this in-depth guide.

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        Planning for your future and working out how best to save for a good pension is something that calls for time and thought. We all work hard and want to reap the rewards of that hard work now and when we’re older, but striking that balance isn’t always easy.

        We get many enquiries about salary sacrifice pensions schemes and what the pros and cons of them are. As with most things, there are both advantages and disadvantages to personal pensions, which is why we’ve written this guide to help you explore this plan  in detail..

        In this article we’ll cover:

        In any case, it’s always advisable to speak with a pensions expert before you make a decision. The experts we work with are able to give you free, impartial advice about salary sacrifice pensions that’s tailored to your circumstances. Call us on 0808 189 0463 or make an enquiry.

        What are the advantages of salary sacrifice pension contributions?

        If you’re thinking about opting into your company’s salary sacrifice pension scheme, you’ll likely find there are some great benefits if you do. Of course, the main one is that you’ll grow your pension for when you retire so you can enjoy life after work.

        Other pros of salary sacrifice pensions include:

        • The pension contribution (your salary sacrifice) won’t be subject to income tax or national insurance contribution payments.
        • In many cases, your employer might continue to pay their national insurance contributions in full, with the element linked to your salary sacrifice also going towards your pension.
        • In addition, every £100 extra paid into your pension savings is subject to a 20% top up from the government’s basic tax rate (£20) contribution, which in total is 25% of the £80 you originally put in.

        In short, salary sacrifice pension schemes are can be a good, tax-efficient use of your earnings to fund a more comfortable retirement. That’s because aside from any profit from investment decisions, your pension will grow by more than the additional contribution you put in from your salary sacrifice.

        To get a more detailed and specific idea of how you would benefit financially from joining your company’s salary sacrifice pension scheme, speak with an advisor. They can answer all your questions and clearly detail the pros and cons of pension salary sacrifice schemes.

        Speak to a expert today

        What are the disadvantages of salary sacrifice pension contributions?

        Of course, as well as advantages, there are also disadvantages to salary sacrifice pension schemes. You also need to consider these to decide if joining one is the right decision for you.

        The disadvantages of schemes that give the option of a salary sacrifice to make pension contributions include:

        • If you sacrifice some of your salary to make payments into your pension, then you are also lowering your income.
        • A lower income could mean reduced benefits from your employer.
        • If the amount of your salary you choose to sacrifice brings you below a certain threshold, you may lose a proportion of life cover your employer provides.
        • Another benefit that could be affected by a lower salary could relate to any maternity pay you’re entitled to.

        There are also some situations where you may not be able to join your employer’s scheme which gives you the option of salary sacrifice to make pension contributions. If you’re an employee on a low income, where salary sacrifice pension contributions could take your earnings below the national minimum wage, then you may not be able to join the scheme or reap the benefits.

        While the above listed cons are possibilities, not all of them may be relevant to you. For example, you may also have private life cover, so that change may not be too important. Likewise, if you’ve already had children and don’t plan on having any more, then any potential loss of maternity pay wouldn’t be a problem for you either.

        Is a salary sacrifice pension scheme worth it?

        For many employees, schemes that have a salary sacrifice facility that can make pension contributions are worth it. The benefits and advantages often outweigh the disadvantages, particularly when you consider how much better off you could be when you begin to draw your pension.

        However, that’s not always true for everyone and if you’re unsure whether or not the pros of your company’s scheme which facilitates salary sacrifice for pension contributions outweigh the cons, it can help to take professional advice.

        Each individual situation is unique, but an experienced pension expert can make the balance of good and bad of salary sacrifice pensions easier to understand.

        Make an enquiry to get started.

        Is there any risk with a salary sacrifice pension scheme?

        As with most financial products, there is an element of risk with a scheme that can facilitate pension contributions from salary sacrifice. We’ve already discussed the potential disadvantages of them and whether or not they apply to your salary sacrifice pension decision. However, there is an added risk from your salary sacrifice pension scheme relating to any investments made with your pension pot.

        In most cases, it’s possible to have your pension invested in the most risk averse way possible. But, even where your pension investment rules are set to take as a little financial risk as possible, there is always a chance that your pension won’t grow as much as you expect.

        However, even though there is risk involved in paying into a pension, whether that’s through salary sacrifice or a different option, it’s still a lower risk for your retirement than having no pension at all.

        Speak with a salary sacrifice pension expert

        If you’re interested in joining your employer’s salary sacrifice pension scheme but need some answers and advice, then you could speak with a qualified and experienced pension expert, like the ones we work with.

        Get in touch with us on 0808 189 0463 or make an enquiry.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

        Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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