When you pay part of your salary into a workplace pension, your employer and the government will contribute too. Each employer contributes a different amount, and the Government gives tax relief on your lower salary, where the saving on your income tax is paid into the pension. This is known as “salary sacrifice”.
- Salary Sacrifice @ The Pensions Advisory Service
Excerpt: You sacrifice part of your salary. The amount you sacrifice is paid to your pension plan directly by your employer, rather than being paid to you. As a result of you having a lower salary, both you and your employer pay less National Insurance Contribution (NIC). As part of the salary sacrifice deal, your employer pays all or part of their NIC saving to your pension plan along with the sacrificed amount. For example, you earn £30,000 a year and decide you want to salary sacrifice £1,000. Your new salary is £29,000, with the employer paying £1,000 to your pension plan. You pay less NIC (and in some cases Income Tax) because your salary is lower. Your employer also pays less NICs and pays a percentage of their saving to your pension scheme.
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Message supplied by: Rich @ Respect Yourself