Don't panic over cash cap

FIVE-MINUTE GUIDE TO...SALARY SACRIFICE

- 

Plan ahead if you use Cycle to Work

CHANCELLOR Rachel Reeves's move to cap pension salary sacrifice schemes may raise a hefty £4.85billion a year for HMRC, but it's a major blow for workers who rely on this option to boost their retirement pots. The Treasury reckons 7.7 million people use salary sacrifice today, making last week's rule change a worry for one in five workers.

Under salary sacrifice, employees agree to reduce their gross salary or sacrifice a bonus, and the employer pays the same amount into their pension.

That way, staff avoid paying National Insurance on their contributions.

Today, scheme members can contribute as much as they like, provided they don't exceed the pensions annual allowance, set at 100% of early salary, up to a maximum of £60,000.

Salary sacrifice also saves a business money, as firms avoid paying 15% employer's NI contributions on the sacrificed amount.