Salary exchange

Why financial education is important to your business

The financial health of your employees impacts overall wellbeing. This affects their ability to perform at work, and retire when they wish, or need to.

Financial education is key to empowering and enabling personal financial responsibility. Employers who facilitate this provide a valuable, and highly visible benefit for their employees.

In today’s climate of defined contribution pension schemes, it’s never been more important to understand the need to plan for retirement. Responsibility ultimately rests with employees to have sufficient money in their pension pots.

Important decisions need to be made and a pension is not the only option for many when budgeting for a comfortable retirement.

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Savings options such as ISA’s, (individual savings account) raising finance through mortgages, loans? There are many facets to determining the right amounts and vehicles in which to save for retirement.

Not to mention the reality of debts, outgoings and the debate to reduce debt or contribute towards savings. By providing financial education for your workforce, you can reap financial rewards as an organisation as well as enabling your employees with the tools with the confidence to make these vital decisions. 

Deliver financial education and save money for your business

The current tax law relating to pension saving provides an opportunity to employers when providing a salary exchanged benefits. By providing employees financial education you:

  • Promote good decision making around personal finances, including an increased awareness around the tax benefits of contributing to pensions
  • Can create NI savings that benefit employees and their pension savings
  • Ongoing financial benefit as an organisation, as your business pays less National Insurance as a consequence of utilising salary exchange.

Exchanging (or sacrificing) salary for an employer pension contribution of the same amount, results in both the employer and employee not having to pay National Insurance Contributions on the amounts respectively.

- 13.8% Employer National Insurance

- 12% or 2% Employee National Insurance (dependent on the employee’s income)

Full income tax relief is still received on their contribution, but it’s achieved using a different route to when making traditional employee pension contributions where relief is added by the insurer.

How does financial education work in real life?

Here is a case study example with an employer saving at least £1,380 following a day of education for Claire age 59.

How will increases to the minimum contributions in April 2019 make a difference?

Here is a case study example with an employee earning £30,000 currently paying 3% moving to 5% in April.

Where to start

 Delivering pensions and wider financial education alongside the launch of a salary exchange scheme or an existing scheme can often result in significant additional employee contributions.

This is one of our indicators that training has promoted a more engaged and financially aware workforce. A positive result of this engagement is an increased national insurance saving for your business to invest either back into pension contributions, pay for other benefits of invest elsewhere.

Act now

What financial education can do is set the wider context and explain the deciding factors for employees when it comes to choosing to make additional pension contributions rather than saving elsewhere or perhaps clearing a mortgage.

This is all possible without the need for financial advice or telling employees what to do.

The amount of tax relief for pension contributions has long been a subject of debate within the Government. The cost to the Treasury (£38.6bn in 2016/17) makes it a target for change and a potential cost saving to the Government. 

Recent Government consultations have focused on reform with a view to strengthening the incentive for individuals to save.

In October 2018 the Government confirmed there is no consensus for radical or piecemeal change.** This was reflected in the 'Guide to Autumn 2018 budget', which also delivered very little change to pensions tax relief. However, longer term change is always possible, especially in such a changing economic landscape. 


Mercer Marsh Benefits (MMB) is a trading name of Jelf Insurance Brokers Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA). Not all products and services offered are regulated by the FCA (for details see marshcommercial.co.uk/info/terms). Registered in England and Wales number 0837227. Registered Office: 1 Tower Place West, London, EC3R 5BU.