Women are far behind men when it comes to signing up to a workplace scheme that could potentially boost their pension pots by thousands of pounds, according to analysis by Scottish Widows.

So-called salary sacrifice schemes, made available by employers, can provide access to “free money” for workers in the form of reduced national insurance contributions.

The schemes work by an employee agreeing to give up a portion of their salary in exchange for a non-cash benefit, often a pension contribution or other perks.

This reduces the employee’s taxable income, leading to lower national insurance contributions for both the employee and the employer, and potentially other tax savings.

But rules which make it harder for the low-paid to join company pensions, and misunderstandings about the scheme, means females, in particular, are at risk of missing out on thousands of pounds for their pension pots, according to Scottish Widows, one of the UK’s largest pension providers.

Just under a third of women, or 28 per cent, are enrolled in their firm’s salary sacrifice scheme, compared with 45 per cent of men, according to a survey of 2,000 workers, conducted in April by the provider.

While there are financial perks to salary sacrifice, pension professionals say misunderstandings about the scheme could explain low take-up.

“Perhaps the biggest myth to bust is that there is actually no sacrifice made,” said Jill Henderson, a pensions expert at Scottish Widows.

“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.”

Average salary workers taking home £37,430 annually could increase their take home pay by £150 a year by opting into their employer’s salary sacrifice scheme, Scottish Widows calculates.

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, who uses this boost every year, and assuming 5 per cent investment growth, this would add £56,343 to their pension savings.

The scheme is particularly useful in avoiding tax “cliff edges” such as the £60,000 threshold for the child benefit tax charge, or to avoid losing the income tax personal allowance for those earning over £100,000.

Interactive Investor, an investment firm, calculates that a parent earning £110,000 who “sacrifices” £10,000 to avoid the £100,000 tax cliff edge would save £6,200 in tax. In effect, a parent in this scenario trades £3,800 of after-tax spendable income for £10,000 in their pension, plus the potential of almost £10,000 in childcare benefits.

Employers would save £1,500 in national insurance contributions in this scenario.

However, salary sacrifice has disadvantages and must be carefully considered.

One downside is that the salary sacrificed income paid into a workplace pension is typically not accessible until normal pension age of 55, rising to 57 in 2028.

Rob Morgan, chief investment analyst at Charles Stanley, a wealth manager, highlights another potential drawback for those looking to borrow money.

“As it reduces gross salary it can impact how much a person can borrow, which is particularly important for mortgage applications, plus it can affect statutory benefits such as maternity pay and redundancy pay,” said Morgan.

Salary sacrifice arrangements can also be inflexible, which could become an issue at times of financial stress.

“Your employer will have rules around how often you change your level of salary sacrifice so you’ll usually need to commit for a set period,” says Morgan.

“Don’t leave yourself short in terms of paying the bills.”

Nevertheless, advisers say employees should use the scheme as much as possible in case the rules change.

After the chancellor announced an increase to employers’ national insurance from April 2025, salary sacrifice became more attractive for many employers, because of potential NI savings.

Speculation has been growing over potential government reforms, after HM Revenue & Customs in May revealed the results of a 2023 salary sacrifice consultation, with some possible scenarios for reducing or removing the benefits.

While the financial perks of salary sacrifice can be compelling, not all employers make the schemes available to staff, especially for part time or low paid staff.

Women are more likely to work in lower-paid roles or part-time jobs, for instance owing to childcare or eldercare, making them less likely to meet the minimum earnings threshold to be automatically enrolled into a workplace pension scheme, or feel they can afford to contribute to a pension.

This contributes to the wider pensions gap problem for women. ONS data reveals women aged 25-34 have 45 per cent less pension wealth on average than men, with the gap being 30 per cent for women aged 35-44, and 46 per cent for women aged 45 to 64.

“Progress has been made on women’s pensions in the last two decades thanks to interventions like auto-enrolment and improving equality on women’s pay and role in society,” says Henderson. “But we are still a long way from where we need to be.”