According to an analysis by Scottish widows, men are far behind when it comes to signing up for workplace schemes and when it comes to signing up for workplace schemes.
The so-called pay sacrifice schemes are made available by employers and can provide workers with access to “free money” in the form of reducing their contribution to national insurance.
The scheme works by employees who agree to give up a portion of their salary in exchange for non-cash benefits, often pension contributions or other perks.
This reduces employee taxable income, reduces national insurance contributions to both employees and employers, and potentially saves other taxes.
However, the rules and misconceptions about the schemes that make it difficult for low wages to participate in company pensions, and the risk that women, especially will risk missing thousands of pounds for pension pots, according to a Scottish widow, one of the UK’s largest pension providers.
A third of women (28% (28%) are registered in the company’s payroll sacrifice scheme, according to a survey of 2,000 workers conducted by the provider in April.
While there are financial perks to pay sacrifices, pension experts say they can explain the low misconceptions about the scheme.
“Perhaps the biggest myth of bust is that there is no sacrifice in practice,” said Jil Henderson, a Scottish widow pension expert.
“The term “salary sacrifice” is a red herring because both employers and employees must give up anything when they use this scheme. That really is an advantage for both parties. ”
The average payroll worker earns £37,430 per year, calculated by a Scottish widow.
This extra cash will be redirected to the pension pot, and in addition to savings by employers by reducing national insurance contributions, pension savings increase by £528 a year.
For workers who retire at age 30 and 67, use this boost every year and assume a 5% investment growth, an additional £56,343 will be added to their pension savings.
The scheme is particularly useful to avoid “cliff edges” such as the £60,000 threshold for child benefits tax liability, or to avoid losing personal income tax allowances for people who earn more than £100,000.
An investment company, interactive investors calculates that parents “sacrificing” £10,000 to avoid the £10,000 tax edge are earning £10,000. In effect, the parents in this scenario trade £3,800 of their post-tax spending income for £10,000 in their pension, and trade in the possibility of a child care benefit of about £10,000.
In this scenario, employers can save £1,500 on national insurance contributions.
However, pay sacrifices have drawbacks and need to be considered carefully.
One drawback is that salary sacrifice income paid to workplace pensions is not accessible until the usual pension age of 55 years old until it rises to 57 in 2028.
Rob Morgan, Chief Investment Analyst at Charles Stanley, wealth manager, highlights another potential shortcoming for those who want to borrow money.
“Reducing your total pay could affect those who are particularly important to your mortgage application and could also affect statutory benefits such as birth wages and redundant salaries,” Morgan said.
Payroll sacrifice arrangements are also flexible and can be a problem in times of financial stress.
“Employers have rules regarding how often they change the level of payroll sacrifice, so they usually need to commit to a set period,” Morgan says.
“Don’t shorten yourself in terms of paying your bill.”
Nevertheless, the advisor says employees should use the scheme whenever possible, in case the rules change.
After the Prime Minister announced an increase in employers’ national insurance from April 2025, the salary sacrifice has become more appealing for many employers as the potential savings of NI.
After HM Revenue & Customs in May revealed the results of the 2023 salary sacrifice talks, speculations have risen over potential government reforms, with several scenarios to reduce or remove profits.
While the financial perks of pay sacrifices may be compelling, not all employers will be able to access the scheme of staff, especially part-time or low-paying staff.
For example, childcare and elder care make women more likely to work in low-paying roles or part-time jobs, less likely to meet the minimum revenue threshold automatically enrolled in the workplace pension scheme, or feel they can afford to contribute to the pension.
This contributes to the wider pension gap issue for women. ONS data shows that women aged 25-34 have an average of 45% less pension wealth than men, with 30% of women aged 35-44 and 46% of women aged 45-64.
“Progress has been made in women’s pensions over the past 20 years thanks to interventions such as automatic breaches and improved wage and role equality in society,” says Henderson. “But we still have a long way from where we need it.”
