Most employers already invest heavily in Workplace Pensions due to it being a mandatory benefit – but what if you could increase contributions, reduce your costs, and improve employee satisfaction without spending a penny more?
Salary Exchange (also known as Salary Sacrifice) is a smarter, more efficient way to fund Workplace Pensions – yet it remains one of the most underused features in the employee benefits toolkit.
According to the 2025 Drewberry Workplace Pensions Survey, just 19% of employees are paying into their retirement pots this way. That means 4 in 5 are missing out — and in many cases, their employers are too.
For both employees and employers, Salary Exchange presents an opportunity to maximise pension contributions while reducing National Insurance (NI) costs. Because contributions are taken from an employee’s pre-tax salary, it results in lower taxable income, meaning there’s less Income Tax and NI to pay.
But the best part? Salary Exchange Pensions can increase the size of employee pension pots – without employers having to pay more.
Despite its clear financial advantages, Salary Exchange remains one of the least understood and underutilised features of Workplace Pensions. When asked if they’d heard of Salary Exchange, 56% of employees said they hadn’t heard of it or didn’t understand how this method worked.
When we asked employees whether their employer offers it, a surprising 74% said they either weren’t sure or believed it wasn’t available at all.
And even among those lucky enough to have access, only 1 in 5 are actually using it. That’s a huge missed opportunity — for employees to grow their pension pots more efficiently, and for employers to save on National Insurance and boost engagement without increasing costs.
Among those not making use of this valuable benefit, the most common reason cited was a lack of understanding around how Salary Exchange works.
Salary Sacrifice pension contributions offer financial advantages, but awareness and understanding is still lacking. Encouragingly, employees are telling us they want to know more — and they’re looking to their employers to help them do it.
When asked ‘Do you think your employer should provide more pensions education?’ 72% said yes.
When asked which topics they’d like to learn more about, Salary Exchange ranked firmly in the top three — highlighting a clear appetite for greater understanding.
In a separate question, 52% of employees said they would be keen to learn about the tax benefits of Salary Exchange pensions.
Employees really value their pension, so imagine how engaged they would be if they fully understood it! Salary Exchange is a great way to do this, offering the chance to boost employee pension pots – without affecting your business’s bottom line. Want to chat it through with a professional? Make an enquiry or give us a call on 02074425880 to find out your options.
Workplace Pensions are consistently one of the most valued benefits among employees — but with Salary Exchange, you’ve got the power to make them go further for both your business and your employees.
Enhanced contributions are the third most-wanted benefit, according to our 2025 Employee Benefits And Workplace Satisfaction Survey, with 60% of employees saying they want their employer to contribute more to their savings pot.
Employees aren’t just saying pensions matter, they’re willing to prioritise them. In fact, 58% said they would take bigger pension contributions over other benefits.
It’s worth assessing whether your existing benefits package is aligned with what your people value most. Which in this case is a bigger pension pot. Salary Sacrifice offers a simple yet powerful way to do just that. By simply changing the way contributions are made, you can unlock meaningful tax savings for your business while boosting the value of your employees’ pension.
It’s a small tweak with a big impact.
Let’s say an employee earning £30,000 per year agrees to exchange £2,000 of their salary into their pension. This reduces their taxable salary to £28,000, lowering their Income Tax and National Insurance payments.
Meanwhile, your business saves on NI contributions for the exchanged amount, and can choose to reinvest the savings by enhancing the employee’s pension contribution. You can choose between the “Simple” or “SMART” method:
Here’s the difference between Simple and SMART, based on the above employee earning £30,000 and choosing to swap 5% (£1,500) in exchange for pension contributions.
Simple Vs SMART | Simple | SMART |
---|---|---|
Salary Exchange | £1,500 | £1,500 |
Gross Salary | £28,500 | £28,500 |
Tax | £3,186 | £3,186 |
Employee National Insurance | £1,274.40 | £1,274.40 |
Employee National Insurance Savings | £120 | £120 |
Net Pay | £24,039.60 | £23,919.60 | Employee Pension Contribution | £1,500 | £1,620 |
It’s not just employees who benefit from Salary Sacrifice — employers can see significant savings too. By reducing the amount of salary subject to National Insurance, businesses can lower their NI bill without cutting pay or increasing pension spend.
The table below shows just how much an employer could save annually, based on different workforce sizes — assuming each employee earning £30,000 sacrifices £1,500 into their pension.
Employer NI Savings | Employees | Savings |
---|---|
10 | £2,250 |
50 | £11,250 |
100 | £22,500 |
250 | £56,250 |
500 | £112,500 |
There are a number of benefits for both employees and employers when implementing a Salary Exchange Workplace Pension.
As an employer you can benefit from:
Employees also benefit from contributing to their pension via Salary Exchange.
Despite its advantages, some employees hesitate to enrol due to misconceptions. Employers must proactively address these concerns.
Many employees believe Salary Exchange will reduce their take-home pay significantly. While there is a reduction in gross salary, the lower tax and NI payments mean the actual impact is minimal compared to the pension benefits gained.
Some employees worry that a lower reported salary could affect mortgage eligibility. However, most lenders assess mortgage applications based on total compensation, including pension contributions, so the impact is often negligible. Just be wary that an employee’s reduced salary cannot result in falling below National Minimum Wage, so not everyone will be eligible.
When set up correctly, Salary Exchange is straightforward, especially when employers provide clear guidance and support. Automated payroll systems (along with an employee benefits consultant) handle the adjustments, ensuring a seamless experience for employees.
By not offering Salary Exchange, your business misses out on significant cost savings and a chance to enhance your pension scheme’s attractiveness. In turn, employees, in turn, lose out on tax-efficient pension growth, which could affect their long-term financial wellbeing.
Salary Exchange is one of the simplest and most effective ways to maximise pension contributions while reducing tax burdens. Yet, lack of awareness and misconceptions mean many employees are missing out on its benefits.
Employers that take the lead in promoting Salary Exchange will not only save on National Insurance but also empower their workforce to build a more secure financial future. As pension adequacy continues to be a major concern, Salary Exchange presents an invaluable opportunity to improve employee wellbeing while benefitting the business.
Considering Salary Exchange? Our 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 get started.
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