Salary exchange delivers ‘win-win’ to workers

11 June 2025

• Only 35% of UK workers are enrolled in their company’s salary exchange scheme
• And yet, three-quarters (74%) of those enrolled said being more financially secure boosted their productivity
• Workers could boost their pension pots by £41,200, more than a year’s average salary, by opting into their employers' salary exchange scheme, according to figures from Scottish Widows.

Average salary workers - taking home £37,430¹ annually - could increase their take home pay by £150 a year, simply by opting into their employers' salary exchange scheme. If this extra cash is then redirected into their pension pot, alongside the savings the employer makes through reduced national insurance contributions, their pension savings would be boosted by £528 a year.

For a worker aged 30 and retiring at age 67, and assuming 5%² investment growth, this would add £41,200 to their pension savings. Those opting in a decade later, at age 40, would see a £24,500 boost to their pension pot.

With the future of salary exchange under the spotlight following recent HMRC research, Scottish Widows’ research emphasises the positive boost that these schemes have on workers' financial empowerment.

Among those workers enrolled in salary exchange, 79% said it makes them feel more confident about maximising their pension savings and being tax efficient when managing their money (77%). An encouraging three-quarters (74%) believe the scheme helps ensure their money is working as hard as possible, and the same proportion (74%) say it boosts their productivity at work, knowing that they are financially secure.

However, just a third (35%) of workers surveyed are already enrolled in their company’s salary exchange scheme, so there is still a significant gap to bridge. A fifth (20%) of workers don’t even know if their employer offers salary exchange.

Often misinterpreted, salary exchange - also known as salary sacrifice - is an arrangement where employees exchange part of their salary in return for an employer pension contribution. Because the salary is being exchanged rather than paid directly, it benefits both employers and employees as neither pays National Insurance Contributions on the amount exchanged. The exchanged amount can then be paid into the employee’s pension plan as an employer contribution - creating tangible savings for both employee and employer, while boosting workers’ retirement savings.

Susan Hope, Scottish Widows Retirement Expert, commented: “Questions loom over the future of salary exchange, despite it being the best way to maximise workers’ retirement savings. Cutting or abolishing it completely would ignore the long-term boost it delivers to people’s finances. Our data shows not only the positive impact on people’s take home pay, and pension wealth, but also the halo effect it has on people’s financial confidence.

“The term 'salary sacrifice' is a red herring because neither the employer nor employee has to give anything up when they take advantage of this scheme. It's truly a win win.

“The key to unlocking additional savings into pensions is awareness, and this needs improving so schemes like salary exchange can positively impact more people’s finances. We should be empowering our workforce's future and salary exchange is one way to do this.”

See here for more information on how salary exchange works and whether it is the right option for you:

Download 'Could I benefit from salary exchange?' (PDF, 72KB)
 

Download full press release (PDF, 180KB)

Notes

Methodology

* The research was conducted online by Censuswide research across 2001 employed respondents (excluding self-employed and freelancers) between 17.04.2025 and 22.04.2025.

¹ https://www.ons.gov.uk/

² The 5% investment growth assumption is based according to Scottish Widows current FCA regulated retirement projections

About Scottish Widows

Founded in 1815, Scottish Widows is part of Lloyds Banking Group, the UK’s largest digital bank and financial services group. With more than £232bn assets under administration and over 10 million customers, Scottish Widows’ award‐winning product range includes workplace and individual pensions, annuities, life cover, critical illness and income protection, as well as savings and investment products.

More than 2 million customers access Scottish Widows products and services through the Lloyds Bank and Scottish Widows apps, in addition to accessing directly through independent financial advisers. The Scottish Widows Platform is trusted by more than 18,000 advisers and 5,400 advice firms, that manage the pensions and investments of almost 166,000 clients.