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Things to think about before opting into salary exchange
Things to think about before opting into salary exchange

Should I opt into salary exchange? The benefits and considerations.

Sahil Sethi avatar
Written by Sahil Sethi
Updated over a week ago

Salary exchange overview

Salary exchange (also sometimes called salary sacrifice) is a government approved scheme that reduces the tax bill for people who save into a workplace pension. When you opt into the scheme, you instruct your employer to make a simple administrative change to how your pension contribution is paid.

If you are not in a salary exchange scheme, you get paid your salary, you pay tax, including National insurance contributions, and then your pension contribution is automatically deducted.

When you opt into salary exchange, your employer puts your pension contribution into your pot before you get paid. It means that your pay appears lower - it isn’t lower, it’s just that your pension contribution’s already been taken out.

The effect of this simple administrative change is that you stop paying tax on the amount you put into your pension. And because your tax bill is lower, your take home pay rises.

If you opt into salary exchange, for every pound that goes into your pension you get an additional 8p (2p for higher rate taxpayers) reduction in the National Insurance you pay. You can see a worked example at the bottom of this article. Salary exchange also has other benefits for higher rate tax payers. Read more about that here.

How salary exchange might affect you

If you receive any kind of benefit that is based on your salary, salary exchange could reduce the level of your benefit.

Statutory pay

Benefits provided by the government, known as statutory benefits or statutory pay, may be affected. This could include Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Shared parental pay, Statutory Adoption Pay, Statutory Parental Bereavement Pay and Statutory redundancy pay. If you think you may be claiming one or more of these benefits soon, you should consider whether salary exchange is right for you.

Bear in mind there are some situations where opting into salary exchange could actually result in more money during parental leave: see here.

Contribution based benefits

Jobseeker’s Allowance or Employment and Support Allowance might also be affected. You can find out more about this here.

The good thing about opting in is that if your circumstances change at any point and you do not want to be part of the salary exchange scheme, you can opt out easily through your Maji app. When you opt out, your pension contribution will revert to being paid after you’ve received your salary. You might choose to opt back in when you’re ready.

Benefits that are unlikely to be effected

Company benefits

Unless you have received a specific warning about this when opting into salary exchange on Maji, your eligibility for company benefits paid on the basis of your salary should not be affected.

Earnings related benefits

Earnings related benefits provided by the government include your state pension and maternity allowance. Eligibility is based on your earnings not dropping below the lower earnings threshold. These will not be affected if your employer is using Maji to manage your salary exchange scheme, because Maji will automatically cap your savings to ensure that you never go under this level.


Having a lower salary after the exchange has been applied is unlikely to affect your entitlement to financial products such as mortgages, life insurance or other loans. Salary exchange is a well known scheme and many mortgage companies will happily base their lending on your pre-exchange salary. You may even appear better off in their affordability checks as your take home pay will be higher.

Example: impact of salary exchange on £2,500 a month salary

*NI based on rates from Apr 2024

Without salary exchange:

First, you get paid your salary (£2,500)

Next, you pay National Insurance tax. The amount of NI is based on £2500. (£116)

Next, assuming a contribution rate of 5% of salary, you put money into your pension. (£125)

You finally pay Income tax on your "salary - your pension contribution" which is £2375

With salary exchange

First, your employer pays in the money you would have put into your pension (£125)

Next, they pay you your salary minus this amount. (£2,375)

Next, you pay National Insurance tax on £2,375 (£106)

Finally, you pay Income tax on your "salary - your pension contribution" which is £2375

But because your pension contribution has already been taken off your salary, the amount of money you pay NI on is lower. And as a result, your NI bill is lower.

So, because of a simple change to the order in which the money goes into your pension, salary exchange gives you an additional £10 to take home per month. Over a year, that’s an extra £120 in your pocket. If, over time, you increased your savings to a level of 12% of your salary (9% from you and 3% from your employer), you’d save £216 from your National Insurance tax bill over the course of a year.

See more about the benefits of salary exchange as a higher rate taxpayer.

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