After running free employee benefits audits for members it struck me that there is plenty to discover on how to use pension salary sacrifice to save on National Insurance, support staff through inflation, and strengthen retention — all without increasing payroll costs.

The Economic Backdrop: Growth, but Still Tight

The UK economy is moving again — GDP grew by 0.3% in Q2 2025, after a stronger first quarter. But despite signs of resilience, it’s still a challenging climate for small and medium-sized businesses.

Inflation is hovering around 3.8%, wages are under pressure, and most companies are balancing cost control with keeping staff happy and engaged.

That’s where pension salary sacrifice — sometimes called salary exchange — can make a meaningful difference.

What Is Pension Salary Sacrifice?

In simple terms, it’s a tax-efficient pay adjustment.
Employees agree to give up part of their gross salary, and the employer pays that same amount directly into their pension pot.

Because the employee’s gross pay is lower:

• They pay less Income Tax and National Insurance (NI).

• The employer also pays less NI on that salary.

The result?
Employees see a boost in take-home pay and retirement savings, while employers reduce payroll costs — all without changing the overall value of pay and benefits.

It’s a fully HMRC-approved mechanism that’s been common among larger employers for years. Increasingly, smaller businesses are realising it can work just as well for them.

Why It Matters More in 2025

1. Inflation still eats into pay
   With costs rising faster than salaries, anything that improves employees’ net income without raising gross pay is a win.

2. Savings scale up quickly
   Employer NI savings multiply across your workforce. A company with 100–200 employees can save tens of thousands each year.

3. A recruitment and retention edge
   With unemployment around 4.7%, offering smarter, tax-efficient benefits can make your business stand out from competitors.

4. It’s cost-neutral — or even positive
   Salary sacrifice isn’t a new expense. It’s a structural adjustment that can improve your financial position while enhancing staff benefits.

A Simple Example

If 100 employees participate at this level, your business could save around £34,500 per year in employer NI contributions — while each employee’s pension grows faster.

How to Implement It Smoothly

1. Communicate clearly – Explain how it works, what changes, and what stays the same.

2. Check payroll systems – Most modern platforms support salary sacrifice, but confirm setup details.

3. Decide what to do with savings – Many employers choose to reinvest NI savings back into staff pensions.

4. Pilot first – Start small, get feedback, and then roll it out wider.

5. Review impact on benefits – Reduced gross pay can affect statutory entitlements like maternity or redundancy pay — so check before launch.

The Bottom Line

With inflation still high and margins under pressure, UK SMEs need smart, compliant ways to retain people and control costs. Pension salary sacrifice ticks every box: it’s efficient, fair, and mutually beneficial.

It helps employees save more for the future and gives employers a meaningful financial lever — something every business could use right now.

How could it work for BCI members? Use this National Insurance savings calculator to see how much you and your employees can benefit from enabling pension salary sacrifice. The best bit, no need to change pension providers. This Pension Salary Sacrifice Calculator estimates how much your business could save in employer National Insurance contributions.

https://www.aslan.io/pension-salary-sacrifice-roi-calculator

Ready to explore how salary sacrifice and your broader employee benefits offering could work for your business?

👉 Get in touch for a free benefits audit, or calculator showing your potential savings.

About Un:Fade Employee Benefits Consulting

Specialists in seamless employee benefits, payroll and fintech solutions consulting. Helping you stand out as an EMPLOYER OF CHOICE by examining your benefits program to ensure cost-effectiveness, and alignment with employee and business goals