Your employer guide to the most common pension schemes

Here is an explanation of Relief at Source vs Net Pay Arrangement vs Salary Sacrifice

There are several different types of pension schemes which suit businesses based on their varying requirements. Whichever scheme a business chooses to implement, they will face advantages and disadvantages. 

There are three ways in which a workplace pension can be deducted from an employee’s salary. Each option will have different tax implications which we have explored below.

Pension tax implication summary

Relief at Source (RAS)

Employees’ pension contributions are paid into the pension scheme after tax has been deducted. The pension provider then claims the tax relief back from HMRC at the basic rate of tax, adding this to the individual’s pension pot. If the employee is a higher rate taxpayer, they will need to claim back any additional tax relief by completing an annual self-assessment form or by contacting HMRC directly.

Pension contributions are taken:

  • After tax is calculated.
  • After national insurance (NIC) is calculated.

Net Pay Arrangement (Net Pay)

Employees’ pension contributions are paid into the pension scheme before tax is deducted but after national insurance is calculated. Therefore, the employee has already received tax relief and, as a result, no relief is claimed back through HMRC.

Contributions are taken:

  • Before tax is calculated.
  • After national insurance is calculated.


Salary Sacrifice (Salary Exchange)

The employer deducts the pension contribution from the employees’ gross pay and then pays this to the pension provider along with their own employer contribution. The total amount is considered as an employer contribution alone. There is no tax relief to claim back from HMRC as the deduction is taken before tax is calculated.

Contributions are taken:

  • Before tax is calculated.
  • Before national insurance is calculated


How Mintago can help

Employers benefit considerably from operating a salary sacrifice scheme as this increases employee take-home pay and reduces employer costs through savings in national insurance. 

Mintago can support you every step of the way when implementing salary sacrifice pension. Support is given from calculating savings to implementing the scheme on your payroll software. We also give your employees access to our financial wellbeing platform which includes educational journeys, our pension hunting technology and other beneficial tools to improve financial wellbeing. Even if your business already implements salary sacrifice pension, we can support you in saving more money whilst providing meaningful education leading to a happier and more productive workforce.

By Mintago Team
Mintago is an FCA regulated company that helps businesses save on their workplace pension NI costs and improves the financial wellbeing of their employees. For the employer, Mintago provides a salary sacrifice pension hassle-free implementation program which creates direct savings on monthly (National Insurance) NI payments. We manage the whole process including communication, compliance and ongoing management. No need to switch pension provider, either. For the employee, Mintago’s unique financial wellbeing platform helps find lost pensions quickly, manage employee pension contributions, while helping them understand their financial situation with over 1,000 pieces of content.

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