A fifth of workers do not know about salary sacrifice, research from Scottish Widows has found.
The firm warned it could mean many are missing out on the chance boost their pensions and retire early.
Scottish Widows also calculated that average salary workers – who take home £27,294 annually after tax – could increase their take home pay by £140 a year, by opting into their employer’s pension scheme and taking advantage of the tax benefits.
It's research revealed 22 per cent of workers have never heard of salary sacrifice or salary exchange, and while 31 per cent have heard the name, they know very little about it.
Susan Hope, Scottish Widows retirement expert, said salary exchange would be a more accurate description as neither employee or employee needs to sacrifice anything.
She said: "Workers are essentially missing out on free money that they could be seeing in their take home pay or adding into their pension savings by not taking advantage of this scheme.
"While it might sound complicated, it’s just a slightly different way to make pension contributions and importantly, it will never mean workers take home less pay. A common myth that needs to be dispelled."
Of those Scottish Widows spoke to, 34 per cent believed the practice would result in them taking home less pay and 12 per cent were under the impression it is something only available to higher earners.
Overall, more than half said they would opt for salary sacrifice if it was guaranteed their take home pay would not be reduced, while 40 per cent said making it simpler to understand should be a top priority for employers and the pension industry.
Hope added: "Getting more people to save more for the future is incredibly important and increasing the awareness of salary exchange, while tackling some of the misconceptions, is one way to do this."
tara.o'connor@ft.com
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