Using Salary Sacrifice to Support Financial Wellbeing!

As an employer, now could be a great time to review your salary sacrifice arrangements and ask yourself whether they’re tailored to supporting employee needs in the current economic climate.

The idea that employees might want to sacrifice a portion of their salary at a time when cost of living pressures are rising might seem counterintuitive. 

But there are tax and National Insurance benefits which can actually mean employees’ take home pay increases. This is because by giving up a portion of your pre-tax earnings each month (to receive the non-cash benefit from your employer) you are reducing your salary. And therefore, because your income is lower, the amount of tax and national insurance that you pay on it is lower too. 

So, these arrangements can in fact be an empowering move that helps employees access spending advantages or luxury items which they might otherwise have to give up. For example, the ability to lease a new electric car, buy a new bike, or afford 1:1 financial coaching. 

Here’s three ways salary sacrifice can empower your teams to feel good about money. 

1. Accessible financial advice and goal-setting

Ninety-four per cent of employees worry about money. Financial coaching helps bridge the gap in affordability of financial advice and make it accessible for all. So while cost of living increases are top of mind, why not give them access to high quality, accredited financial advice? 

Financial planning is all about saving for the future while enjoying yourself now. Via our salary sacrifice arrangements an employee pays £14-17 per month and receives quarterly coaching sessions, a custom, interactive financial plan, a personal digital action tracker and help finding the right specialists for their financial needs. We also estimate that the average household can be over £9000 better off after 12 months of coaching. 

It’s important to be clear that the value of a salary sacrifice will be very bespoke and depend on someone’s individual circumstances. Having a financial coach can be a great way to help them understand the impacts for them.

2. Ensuring long-term financial health stays front and centre

When the now is in crisis we forget about the future. It’s a balancing act. Pension matching is one of the best perks you can get – effectively free cash from your employer, which gets more free cash on top (courtesy of tax relief). But it’s also probably one of the most overlooked benefits among workers. Partly because it’s indirect (i.e. not cash in hand) and partly because it’s related to a future version of ourselves who’s not struggling with present cost of living challenges. 

Shah Abassi, head of financial coaching at Octopus Money says: “One of my favourite things as a financial coach is getting that “aha” moment when people finally understand how a pension is tax efficient. The majority of people I speak to don’t always fully understand their workplace pension arrangements until I explain it. With cost of living increases putting pressure on day-to-day budgets there’s a worry that people will stop contributing into their pensions not realising what they’re losing out on!”

3. Making sustainable choices more affordable

It’s often the case that making more sustainable choices comes with a higher price tag. So as costs of living increase, greener choices might become less accessible. 

Salary sacrifice can give your employees the opportunity to keep spending in line with their values and having a positive impact on the planet.  For example, a salary sacrifice arrangement with Octopus Electric Vehicles can save an employee up to 40% on a brand new electric car (in addition to the income tax and national insurance savings). So, salary sacrifice enables employers to support their employees to make better choices in a more affordable way.

Support and educate your teams to make the most of their financial benefits! 

Our coaches recommend avoiding overly restrictive approaches to budgeting. It’s important to focus on giving ourselves space in our budget for small luxuries and treats and stuff we enjoy, so we’re not solely focused on what we have to cut. This is especially true at the moment larger life goals might be put on hold because of the impact of inflation or rising interest rates. 

Just offering benefits through salary sacrifice isn’t necessarily enough to make sure your employees are taking advantage of them. Not all benefits will make sense for all employees. And that it’s important to ensure you’re providing someone they can talk to about their individual circumstances, whoever that might be.

But it’s important to make sure you’re communicating regularly about what’s available and educating your employees on the positive impacts salary sacrifice arrangement could have for them.

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Octopus Money Limited is an appointed representative of Octopus Investments Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England & Wales under No. 14069098.

Octopus Money is a trading name of TW11 Wealth Management Limited. Registered in England and Wales (No. 10339119). Authorised and regulated by the Financial Conduct Authority. Our Financial Services Register number is 763630.

As with all investing, your capital is at risk. If you choose to invest with Octopus Money, the value of your investments can go down as well as up and you may get back less than you invest.