Switching to a salary sacrifice pension arrangement for your employees makes a lot of sense. After all, both your company and your employee can save money with this scheme through reduced NI payments. But, to maximise your employer savings and make sure employees are getting the most out of it, you’ll want to make sure as many as possible take advantage. That’s where the question of pension opt-in vs opt-out comes in. Rather than asking employees to actively opt in, you might consider setting up an opt-out arrangement to increase participation and boost the overall benefit for everyone.
But is an opt-out arrangement really the best way to get employees into salary sacrifice? And how can you make sure you do this in a fair and compliant way? We’ve compiled this guide to opt-in vs opt-out to help you set up the best salary sacrifice pension arrangement for your company.
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How do I add employees to a salary sacrifice pension arrangement?
If you’ve decided to get going on saving money through switching to a salary sacrifice pension, it’s important that employees are educated about the change and consent to what’s happening. This is a vital piece of compliance that employers sometimes miss. You’ll need to keep records in case HMRC want to check up on employee consent.
To gain their consent, you can make the switch in one of two ways:
Opt-in
You can ask employees to submit their consent to opt into salary sacrifice, usually by a certain deadline before the first month of sacrifice. You notify the payroll team to change the arrangement for those employees who said yes.
Opt-out
You let employees know that the change is happening on a certain date, and that they must opt out by the deadline if they don’t want this to happen. You notify the payroll team to change the arrangement for everyone except those employees who opt out (or are ineligible for the scheme).
What makes for a successful switch?
When you make the switch to salary sacrifice, you might be wondering how to measure its success. We can look at this from the point of view of both you as the employer, and your employees.
- You save the maximum amount of employer NI: Your potential saving was probably a big reason for choosing this arrangement, so it makes sense to maximise this. The more employees make the switch, the more NI you will save.
- More employees save NI too: For most employees, entering salary sacrifice will give them a boost in take-home pay. This little bit extra can help them build a savings pot, or cover a monthly treat. If you’re adding salary sacrifice for financial wellbeing purposes, this is a key benefit.
Having the maximum number of employees enter the scheme will help you achieve both of these things.
Opt-in and opt-out compared
So, which method is best for getting the most employees into salary sacrifice?
Advantages and disadvantages of opt-in
Running an opt-in switchover means employees must make an active choice to participate. You may feel that you prefer this to fit in with your company culture. Some employees are ineligible for salary sacrifice (usually based on salary level and whether the sacrifice would take them below minimum wage); if you have large numbers who would not be able to take part, you may feel that announcing a widespread change would be inappropriate.
However, asking employees to opt in almost always leads to lower levels of participation. Often, this can be down to simple apathy, as employees don’t feel urgency to make the change even though they can get a financial advantage. Sometimes, it can also be down to misunderstanding the implications. After all, it’s called salary sacrifice – it’s easy for people to think that something bad is going to happen!
The opt in method is rarely a good idea. It usually means you and your employees miss out on those excellent savings, and your return on investment of time and effort could be much lower. Plus, your workload will be much higher – you’ll spend a lot of time chasing people trying to find out if they didn’t opt in because they didn’t want to, they didn’t get round to it, or because they feared the worst!
Advantages and disadvantages of opt-out
Running an opt-out switchover usually means much higher levels of participation – Maji’s process usually leads to at least 95% of employees entering salary sacrifice, vs 40% with opt-in. This is because it’s simply easier for most people to just let things happen! Because, for most people, the arrangement is beneficial, this just makes it simpler for them to get their pay boost.
However, there is a small risk that some employees may not fully understand what’s happening, or may be surprised about their next payslip. And, there are a number of compliance boxes you need to tick for HMRC. That’s why providing solid educational resources, informative webinars, and an interactive platform like Maji, is vital to ensure employees are fully clued-up, and that you’ve got peace of mind that everything has been done in the right way.
If you’ve got the right tools in place, opt-out seems a clear winner: it’s easier to manage, gets more people into the arrangement, and saves more money for you and for them.
What you should look for in an opt-out scheme
To get the most value from a salary sacrifice pension arrangement, it’s essential to implement your opt-out scheme properly. A well-designed scheme ensures compliance, maximises participation, and keeps admin low. Here’s what you should look for:
- Full statutory information provided to employees – Employees must receive all required information clearly and on time to meet legal obligations.
- Financial education – Helping employees understand how salary sacrifice works ensures they feel confident and positive about the change.
- Personalised resources and support – Not everyone benefits equally from salary sacrifice. Your scheme should provide tailored guidance based on individual circumstances, whether that’s ensuring lower earners (i.e. those earning less than £13,000 pa) aren’t worse off from changes , or enabling higher earners) to optimise their tax savings.
- Full compliance – Your scheme must strictly adhere to all legal requirements, including ensuring compliance with the National Minimum Wage (NMW) regulations and correctly maintaining statutory benefits such as pension and maternity pay calculations. This protects both your business and employees from compliance risks and ensures the scheme runs smoothly.
- Low admin – Your HR and payroll teams should have simple, streamlined processes and minimal manual input.
- Ongoing maintenance – The scheme should be easy to manage over time, including keeping records for HMRC and automating your ongoing compliance and admin responsibilities
How Maji can help
Maji helps you build a compliant, high-performing opt-out scheme that delivers maximum impact with minimal effort. With our platform and expert support, you get:
- Compliant communications – We handle all statutory notifications and ensure every employee understands how they can benefit from the scheme.
- Engaging education – From webinars to personalised pay modelling, we equip employees with the knowledge they need to make informed choices.
- Streamlined opt-out process – Employees can opt out digitally in just a few clicks, with records stored automatically for compliance.
- Payroll-ready reporting – We generate clear, exportable data to send straight to your payroll team.
- Ongoing scheme support – We help you maintain your scheme, support new joiners, and manage any changes with ease.
- Increased participation and savings – With more employees enrolled, you and your team benefit from higher NI savings and improved financial wellbeing.
Ultimately, choosing the right pension opt-in vs opt-out approach can significantly impact how many employees benefit – and how much your organisation saves. Schedule a demo call with Maji to get a tailored proposal for your business.
