Martin Lewis lays out the two types of pensions
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With the cost of living crisis continuing to bite, most people will want to have more money in their pockets. However, pension savers could be missing a “trick” to save them more in the long run.
It relates to workplace pensions, and the idea of salary sacrifice, which could save Britons significant sums of money according to research.
Salary sacrifice can be arranged by an employer, and involves a person agreeing to reduce their salary by an amount equal to their pension contributions.
Their employer will then step in to pay their pension contributions in full.
As a result, it will save both the employee and the employer money in lower National Insurance contributions.
According to the research from Cushon, someone on a £30,000 annual salary would save approximately £200 in National Insurance.
Those earning £50,000, for example, would save even more, at around £330 per year.
Although the option makes someone’s salary look lower, there are actually benefits.
Salary sacrifice should mean take-home pay is higher due to the saving in National Insurance.
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Britons are also saving the same amount into their pension for later down the line.
Ben Pollard, CEO and founder of Cushon said: “At a time when more than half of us are unable to save due to the rising cost of living and surging energy bills, and with the National Insurance rise about to make things worse, our research shows that millions may be missing out on the chance to beat the hike and save hundreds in National Insurance payments.
“Salary sacrifice is a simple way for people paying into workplace pension schemes to save hundreds of pounds each year just by changing the way their contributions are made.
“If their employer uses salary sacrifice for their pension contributions, people pay less National Insurance on their overall salary.
“Their take-home pay is actually higher and their pension contributions are unaffected.”
Mr Pollard expressed his worry that many employers are not currently offering the option of salary sacrifice.
With employers now facing a nine percent increase in NI costs, salary sacrifice could be a good option all round.
Mr Pollard added: “If more employers were to use salary sacrifice, not only would they benefit their bottom line, but they could be helping their employees’ financial wellbeing.”
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There are, however, preconceptions about what salary sacrifice actually entails.
The research showed 30 percent of those asked believed they would be missing out on pay by taking this option.
Indeed, a quarter of people also said they felt salary sacrifice sounded too complicated for them to pursue.
For former pensions minister Baroness Ros Altmann, salary sacrifice could be good way for Britons to get “more money into their pockets”.
She added: “Those people who are able to access salary sacrifice through their employer but choose not to take it up are missing out on ‘free money’ from the Government.”
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