The 40% of Employers Missing Out: Why Salary Exchange Deserves a Closer Look

Rising employment costs are putting pressure on UK businesses. National Insurance contributions, wage growth, and benefit expectations are all climbing. But while most organisations are focused on what’s getting more expensive, fewer are asking a more useful question: where can we be more efficient?

Our 2026 Employee Benefits Benchmarking Report suggests one answer is being overlooked. Nearly 40% of employers still don’t utilise Salary Exchange (Salary Sacrifice) for Workplace Pension contributions; a move that could generate substantial savings for both employer and employee.

Salary Exchange For Pensions In 2026

Despite the announced changes in 2025’s Autumn Budget, Salary Sacrifice remains one of the most effective and tax-efficient ways for employers and employees to fund Workplace Pensions. With Salary Sacrifice, employees agree to reduce their gross salary in return for increased employer Workplace Pension contributions.

Because National Insurance (NI) is calculated on the reduced salary, both employer and employee save on NI. Essentially, the same contribution can cost less overall. Both approaches achieve the same underlying outcome: making Workplace Pension contributions more efficient.

The good news is, more than half of employers are offering some form of Salary Exchange Workplace Pension contributions. Although a good chunk of respondents aren’t even sure whether they offer it.

It’s an even split between Salary Sacrifice methods. 29.2% utilise Simple Salary Sacrifice, where any NI savings are returned through higher take-home pay. This additional pay can make a big difference, especially as employees report money worries as the second biggest cause of stress. Another 29.2% use the SMART method, where NI savings are added to an employee’s Workplace Pension contributions rather than take-home pay.

Why Implement Salary Exchange?

At its core, Salary Exchange is simple. Employees agree to reduce their gross salary in exchange for higher employer pension contributions. Because NI is calculated on the reduced salary, both employer and employee pay less. The result aligns to lower costs for employers and improved value for employees.

And that matters more than ever, as the UK faces a future pensions crisis, with 54% of retirees projected to be under-savers or financially struggling within the next 20 years². That’s more than half of employees who aren’t contributing enough to support even a basic standard of living in retirement, with the average pension pot⁵ remaining well below what is required for long-term financial security.

Workplace Pensions are also a big deal to your people. According to separate employee research³, enhanced pension contributions are employees’ third most-wanted benefit, and the majority of employees would take bigger pension contributions in place of other benefits⁴.

Small increases in contribution rates (particularly when supported by employer-matching and tax efficiency) can make a substantial difference over time (an extra 1% could increase the size of an employee’s final retirement pot by 25%⁶). Salary Sacrifice is one of the most effective ways to help employees improve their retirement outcomes without increasing your employer costs.

Tackling Rising Employment Costs

For employers, this is where Salary Exchange becomes more than a technical adjustment. It offers a practical way to manage rising employment costs without scaling back benefits, or, more strategically, to reinvest savings into more competitive pension offerings.

At a time when cost control and talent retention are often in tension, this kind of flexibility matters.

Employees also see a direct benefit. Whether through increased take-home pay or higher pension contributions, the impact is tangible. And with financial stress affecting both wellbeing and productivity², improving efficiency can really make a difference.

There are still more than three years of uncapped savings available, which means employers have every reason to act now rather than wait.

Adam Gibbs
Senior Workplace Pensions Consultant

Boost Workplace Pensions and Your Bottom Line

Salary exchange aligns well with broader Workplace Pension strategy. The report shows that around three quarters of employers offer some form of matching contributions, so combining matching structures with salary exchange can amplify impact without proportionate cost increases.

For organisations seeking to differentiate themselves in recruitment markets, being able to explain a tax-efficient Workplace Pension structure adds substance to the benefits narrative.

Don’t Miss the Opportunity While It’s Here

Whether it’s a lack of awareness or uncertainty around implementation, at a time where every percentage point of cost matters, overlooking a government-supported tax efficiency measure can be difficult to justify.

Salary Exchange may not suit every organisation or employee population, but for many it represents a practical adjustment with measurable benefits.

Need Help?

The thought of changing up your Workplace Pension scheme can be daunting, but it doesn’t have to be. Our highly-experienced and friendly team will handle all the heavy lifting for you: from finding the right scheme, rolling it out to employees, and measuring its performance.

We’ll ensure everything’s compliant, making adjustments where needed based on employee feedback and changing tax regulations. Call 02074425880 or make an enquiry to organise a free consultation.

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Why Speak to Us?

Employee benefits can be a headache. But our specialists do this day-in, day-out, offering first class service when you need it most. Here’s why you should talk to us:

• Award-winning independent employee benefits consultants, working with leading UK insurers and benefit providers
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Sources

• ¹2026 Employee Benefits Benchmarking Report: https://www.drewberryinsurance.co.uk/knowledge/2026-employee-benefits-benchmarking-report
• ²FT Adviser, Phoenix Insights, Frontier Economics 2024: https://www.ftadviser.com/content/21ccf072-e70a-54b6-9187-6f168696d44e
• ³Drewberry 2025 Employee Benefits and Workplace Satisfaction Survey: https://www.drewberryinsurance.co.uk/knowledge/research/employee-benefits-survey-2025
• ⁴Drewberry 2025 Workplace Pensions Survey: https://www.drewberryinsurance.co.uk/knowledge/research/workplace-pension-survey-uk-2025
• ⁵Forbes: https://www.forbes.com/advisor/uk/investing/average-pension-pot-in-uk/
• ⁶WEALTH at Work: https://www2.wealthatwork.co.uk/lseg/2021/04/13/saving-an-extra-1-of-salary-into-pension-can-increase-your-pension-pot-by-25/