Salary Sacrifice Guide: Pension, Cycle-to-Work & More

What Is Salary Sacrifice?

Salary sacrifice means you agree to receive less gross salary in exchange for a non-cash benefit. Because your gross pay is reduced, you pay less income tax and National Insurance. Your employer also saves on employer NI.

Pension Salary Sacrifice

The most impactful scheme. Instead of paying pension contributions from net pay, your employer pays them before tax. A higher rate taxpayer contributing £500/month saves: income tax (40%) = £200, employee NI (2-8%) = £10-40. Total saving: £210-240/month versus a traditional pension contribution.

Cycle-to-Work Scheme

Buy a bike and accessories worth up to £5,000 (some employers allow more) through monthly salary sacrifice over 12 months. Typical saving: 25-39% depending on your tax rate. A £1,000 bike costs roughly £610-750 through the scheme.

Electric Car Salary Sacrifice

One of the most generous schemes. Lease an electric car through salary sacrifice and pay just 2% Benefit in Kind (BiK) tax, versus 20-37% for petrol/diesel. A £400/month EV lease might effectively cost you £250-300/month after tax and NI savings.

Other Common Schemes

Technology: Some employers offer laptops, phones, or home office equipment. Childcare vouchers: Closed to new applicants but existing users can continue saving up to £55/week. Holiday purchase: Buy extra holiday days through salary sacrifice.

Things to Watch

Salary sacrifice reduces your gross pay, which can affect: mortgage affordability assessments, statutory maternity/paternity pay, student loan repayments, and your state pension if salary drops below the NI threshold. Weigh these against the tax savings.