New Tax Year pension planning 2025-26

The new tax year is a great time to take stock of your allowances and make a plan for how you’ll make the most from them over the next 12 months. One of the ways to do this is to ensure you’re paying the maximum amount available into your pension via the salary sacrifice scheme.

In the blog we take a closer look at salary sacrifice, to help you understand the process in more detail if you’re new to using an Umbrella Company, or to check you’re doing everything possible if you’re a seasoned employee.

Why salary sacrifice?

Saving for retirement and ensuring you’re making the most from your money is so important, and by using salary sacrifice you’re able to allocate a percentage of your pre-tax salary to your pension pot. This value is exempt from tax and National Insurance, so it’s a really good way of putting a lot of money into your pension without having to pay tax on it first.

What are the positives from using salary sacrifice?

Tax saving – As mentioned above, any value you put into your pension via salary sacrifice is exempt from tax and National Insurance.

The Government’s pension top-up – If you’re a basic rate tax payer, the government will contribute an additional £20 into your pension for every £80 you personally put in.

The ability to reduce your tax liability – As salary sacrifice pension contributions are taken from your pre-taxed salary, your overall taxable income total is therefore reduced, resulting in less tax due on your salary that’s left. This ultimately can mean an increase in your take home pay, depending on the total amount you decided to sacrifice and the tax due on your remaining salary.

Extra pension tax relief – Because salary sacrifice contributions aren’t subject to income tax or National Insurance Contributions, it ultimately provides better tax savings as you’ll only receive tax relief at the highest rate of income tax that you pay on workplace pension contributions.

How does salary sacrifice work with SG Umbrella?

We can facilitate paying into a scheme of your own choice, so long as they allow us to make Employer Pension Contributions via faster payment and not direct debit.

Depending on whether your timesheets are paid weekly/monthly, we would deduct the pension contribution weekly/monthly. We make payments just after the 5^th of each month for all deductions made in the prior tax month. If your pension provider requires a form or email sent each time payment is made, we can facilitate this. The additional charge for adding on private pensions is £5 per week.

As these are classed as ‘Employer Pension Contributions’, this is the first deduction that is made before the remaining amount we have received from your agency is processed through the payroll. This means it reduces the Employers NI, Employees NI and PAYE Tax.

You’re able to contribute a maximum of £60,000 per year into the scheme or 100% of your earnings after National Minimum Wage and Holiday Pay, whichever is lower. If you have any unused allowance from previous years you may be able to also contribute this, but we’d advise discussing this with a Financial Advisor before doing so. If you decide to add pension contributions to your SG Umbrella package for an additional £5 per week, access to a Financial Advisor is included in the price.

What are the negatives of using a salary sacrifice scheme?

Before entering into a salary sacrifice scheme, it’s always worth understanding the negatives to ensure it’s the right decision for you:

It’s not viable for everyone – If salary sacrifice reduces your salary to below the National Minimum Wage then your employer isn’t able to offer it to you.

You’ll take home less pay – Depending on the total amount of your salary that you sacrifice, you may end up taking home a lower amount each week or month, so it’s important to understand the effect this may have on you.

Check your state benefit entitlements – Your National Insurance Contributions (NICs) determine your entitlement to state benefits, such as the State Pension, Maternity Pay, etc. It’s worth understanding how a reduction in the amount of NICs you pay could have a knock-on effect on your entitlement.

The amount you can borrow and life cover – If you’re considering a mortgage or loan, having a lower take-home pay can influence the total amount you’ll be able to borrow. You may also receive a lower life cover total value, and whilst many lenders and insurers do consider salary sacrifice schemes, it’s worth noting that not all do and therefore could limit your access to loan value and life cover.

Salary sacrifice vs workplace pensions

If you’ve always been employed by an end client rather than an Umbrella Company, you may be wondering what the difference is between salary sacrifice and workplace pensions. In the following example we look at both, to showcase how much better off you could be:

Annual salary: £35,000

1. Workplace pension scheme: employee contributes 5% of their salary, employer contributes 3% (the minimum value for a pension contribution for an autoenrollment workplace pension scheme)

Employee’s total contribution: £1,750

Employer’s total contribution: £1,050

Combined total contribution value: £2,800

2. Salary sacrifice scheme: employee contributes 5% and reduces their salary to £32,941. The employer pays the sacrificed salary into the employee’s private pension

Employee’s total contribution: £3,392.94

Workplace pension value vs salary sacrifice scheme: £592.94 more from using a salary sacrifice scheme then a workplace pension.

Starting your salary sacrifice scheme with SG Umbrella

If the salary sacrifice scheme is sounding like the right option for you, getting set up is so simple with the SG team. They will ask you the following questions:

• How much do you want to allocate into your private pension? (as a % or fixed value for each payment frequency)
• To complete and return our pension form and sign a salary sacrifice agreement
• The team will then get you set up and ready to make your first salary sacrifice payment into your pension. You’re free to leave the scheme at any time, and the process and subsequent actions will be explained to you in detail by one of the SG team
• If you’re yet to decide on your private pension provider, we partner with a small number of specialists who really understand our clients. Simply complete this form and we’ll ask a Financial Advisor to give you a call to discuss your needs

Your SG Umbrella team are always here to help

If you’re new to the world of pensions, just need a refresh on their intricacies, or want to speak to a Financial Advisor about your savings, simply get in touch. Our team are here to offer their support or help to get in touch with those experts who can discuss your options in greater detail. Find out more today.