United Kingdom

Government urged to extend salary sacrifice arrangements for low-paid workers

December 2017


The government is under pressure from industry experts to review salary sacrifice legislation so it benefits those on lower incomes.

Under current arrangements, employees sacrifice a small proportion of their salary which allows employers to make larger pension contributions on their behalf. This allows both parties to benefit from lower national insurance contributions (NICs) as pension contributions coming direct from the company are subject to a lower NICs bill.

In a salary sacrifice arrangement, pension contributions are made entirely by the employer.

But pension provider Royal London and IFA firm Radcliffe & Co warn that those on lower wages are missing out on these benefits. Offering salary sacrifice to an employee on National Minimum Wage or the voluntary National Living Wage would take them below the legal minimum.

Currently, the National Minimum Wage is £7.50 an hour for those over 25, while the National Living Wage, introduced in 2015, is currently set at £8.75 per hour with the London Living Wage currently set at £10.20.

Adam Burn, senior DC pension consultant at Aon Employee Benefits said: “Given the increase to the National Living Wage announced by Philip Hammond in the budget, this issue is likely to impact a greater number of employees from April next year. This therefore needs to be addressed and fast as it could contravene the range of pension legislation introduced over the last 10 years which has aimed to provide pension access to lower paid individuals.”

Writing to Greg Clark Secretary of State for Business, Energy & Industrial Strategy, Sir Steve Webb, director of policy at Royal London and former pensions minister said:

“Given that the Treasury has specifically decided that employer pension contributions should continue to benefit from salary sacrifice arrangements, it seems unfair that lower-paid workers are currently missing out. National Living Wage legislation was designed to benefit lower-paid workers and it is doubtful whether the interaction with salary sacrifice was seriously considered when the legislation was drawn up.”

Marc Cumberlege, adviser at Radcliffe’s & Co said: “This is not just a theoretical issue. I have come across employers who want to deliver high quality pension provision to their staff in a cost-effective way and risk falling foul of minimum wage legislation if they do so.”

Burn added: “Failing to provide the tax efficiencies for pension savings that are available to higher paid colleagues will impact the very members of society that most need assistance with retirement saving.”

The latest salary sacrifice legislation, which introduced new Optional Remuneration Arrangements (OPRA), became law in April of this year.



Aon UK Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales. Registered number: 00210725. Registered Office: The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN.