Salary sacrifice is not the best option for everyone, so you should be aware of the potential drawbacks and take them into account before deciding whether or not to opt out.

Salary sacrifice could affect your current or future entitlement to a range of state benefits, including tax credits. This is because you need to earn more than the lower earnings limit (£6,396 a year or £533 a month in 2024/2025) to be eligible to receive a number of state benefits. If your earnings (after salary sacrifice) fall below the lower earnings limit, you will not be eligible for: statutory sick pay, statutory maternity or paternity pay (see below), statutory adoption pay, incapacity benefit and jobseeker’s allowance. More information on state benefits can be found below and at: www.gov.uk/browse/benefits.

Tax credits

To check if your tax credits will be affected, phone HMRC’s tax credit helpline on 0345 300 3900 or visit www.gov.uk/browse/benefits/tax-credits.

Statutory maternity pay

If you qualify for statutory maternity pay, you will receive 90% of your average weekly earnings for the first six weeks of your maternity leave, followed by either £156.66 a week (standard weekly rate 2024/2025) or 90% of your average weekly earnings (whichever is lower) for the rest of your period of paid maternity leave.

You will continue to pay into the Fund through salary sacrifice while you receive statutory maternity pay, unless it takes your income to below the standard weekly rate. If this happens, we will take you out of salary sacrifice until you return to work after your maternity leave. This is to make sure that you don’t get less than the standard weekly rate and can continue to benefit from salary sacrifice where possible.

State pension

Your state pension could be lower if you have not paid enough national insurance when you retire. You may also be affected if you pay the married woman’s reduced rate of national insurance.

Visit www.gov.uk/state-pension/eligibility to find out how much state pension you would be entitled to.

National living wage

Salary sacrifice should not reduce your cash pay to below the national living wage. This means that if you are working full time and earn around £18,525 or less, you should take care when considering entering into a salary sacrifice scheme.