Just over a third (35%) of salaried workers are enrolled in their company’s salary exchange scheme, Scottish Widows has found, warning that the rest could be missing out on a pensions pot boost potentially worth tens of thousands of pounds.

Salary exchange, the scheme where employees exchange part of their salary for an employer pension contribution, is also known to as salary sacrifice, although Scottish Widows called this term “a red herring.”

Scottish Widows’ retirement expert Susan Hope said: “Neither the employer nor employee has to give anything up when they take advantage of this scheme. It's truly a win-win.”

Under the arrangement, both the employer and the employee are exempt from National Insurance Contributions (NICs) on the amount exchanged, and the employee receives a boost to their pension.

However, the scheme has been under the spotlight recently, after the government shared research into its value and mooted the idea of cutbacks.

Just over a third (35%) of workers have opted into salary exchange, and 20% of those surveyed did not know whether their employer offered the scheme, Scottish Widows' research found.

And yet, according to Scottish Widows, a worker on an average salary of £37,430 could increase their take-home pay by £150 a year by opting into their employer’s salary exchange scheme.

This, the firm said, could amount to large increases in pensions savings. Redirecting this amount, as well as the savings the employer makes through reduced national insurance contributions, would mean their pension was boosted by £528 a year.

Taking the example of a 30-year-old employee retiring at age 67, and based on an investment growth of five per cent, £41,200 would be added to their pension pot.

Starting later would still see significant gains for workers – an employee on the same wage at age 40 would see a £24,500 boost.

Aside from future financial gains, Scottish Widows’ research suggested salary exchange has other benefits.

Of those who have enrolled, three-quarters (74%) reported a boost in their productivity at work, as they know they are financially secure.

Furthermore, 79% said they felt more confident about maximising their pensions savings, while almost three-quarters (74%) said the scheme helps ensure their money is working as has as possible.

Scottish Widows’ retirement expert, Susan Hope, said: “Questions loom over the future of salary exchange, despite it being the best way to maximise workers’ retirement savings. Cutting or abolishing it completely would ignore the long-term boost it delivers to people’s finances.

"Our data shows not only the positive impact on people’s take-home pay, and pension wealth, but also the halo effect it has on people’s financial confidence.

“The key to unlocking additional savings into pensions is awareness, and this needs improving so schemes like salary exchange can positively impact more people’s finances.

"We should be empowering our workforce's future and salary exchange is one way to do this.”

---