Which statement best describes salary sacrifice?

• A. It increases take-home pay by reducing salary.
• B. It involves employee sacrificing salary in exchange for additional employer pension contributions, often with tax advantages.
• C. It reduces pension contributions from the employer.
• D. It has no tax implications.

Answer: (B)

Salary sacrifice is an arrangement where you give up part of your gross salary in exchange for your employer making additional pension contributions on your behalf. The purpose is to convert earned income into pension funding, which often brings tax advantages: your taxable income for income tax and National Insurance can be reduced because the sacrificed amount is not paid as salary, while the employer contributes more to your pension. This can also create NIC savings for the employer. It’s not about increasing take‑home pay; in fact, the cash pay is lower, though tax relief can offset some of the impact. It also does not reduce employer contributions; it increases them in exchange for the salary sacrifice. And it does have tax implications, contrary to the statement that there are none.