If we asked you to take a cut in pay, you might reasonably think we had taken leave of our senses. Yet it could be a sacrifice worth making.

Of course, nothing is what it seems. In this case a pay cut really means sacrificing part of your salary in return for something really worthwhile. In this case, a pension contribution. Pensions are all very worth while, but they are remote for most of us. So giving up income now, for a better long-term future could seem unattractive.

But if you do not plan for your own pension, you may have to rely on the basic state pension, which is just £90.70 a week for a single person (£145.05 a week for a married couple). So if you earn £48,000 a year, you could face a 84% drop in income (at best) if you have no other provision (although the second state pension should provide some additional income).

You can calculate your expected pension with our pension calculator.

But every £1 you put into a pension now saves you 20p in tax immediately plus an extra 20p for higher rate taxpayers. There are limits to how much you can invest which are broadly the lower of your annual income from trade profession or employment and the annual allowance which is £235,000 for 2008/9.

Both you and your employer will save on both tax and national insurance contributions and your employer can save 12.8% of your salary in national insurance contributions, as well – which can also be put into your pension without any tax liability, provided the annual allowance is not exceeded and the total contributions are justified in terms of a business allowance.

Have your say
Have you been offered salary sacrifice? How did it work? Why not let us know by commenting below? 

It is always important to take professional independent advice before making any decision regarding your personal finances. Please contact Robert Bruce Associates for details.