Salary Sacrifice Pension Calculator
See exactly how much you save in tax and National Insurance — and the true net cost of your pension after tax relief.
Your Details
The % of salary you sacrifice into your pension
The % your employer adds on top
Found on your payslip or P60. Standard is 1257L.
You save annually with salary sacrifice
£490
Pay Comparison
| Without | With sacrifice | Change | |
|---|---|---|---|
| Gross Pay | £35,000 | £33,250 | -£1,750 |
| Income Tax | -£4,486 | -£4,136 | +£350 |
| Employee NI | -£1,794 | -£1,654 | +£140 |
| Take-Home Pay | £28,720 | £27,460 | -£1,260 |
Pension Pot
Net cost to you
After tax and NI savings
A £1,750 pension sacrifice only costs you £1,260 — that's a 28% discount thanks to tax and NI relief.
Employer NI Saving
Your employer saves
On their Class 1 NI contributions
Some employers pass their NI saving back as additional pension contributions. Ask yours!
How does salary sacrifice pension work?
Salary sacrifice (also called salary exchange) is an arrangement between you and your employer. You agree to give up a portion of your gross salary, and your employer pays that amount directly into your pension pot on your behalf.
Because your contractual salary is officially reduced, you pay income tax and National Insurance on a lower amount. This means your pension contribution costs you significantly less than it would if you paid into a personal pension from your net pay.
A basic-rate taxpayer sacrificing £100 a month might only see their take-home pay fall by around £68 — because £20 of income tax and £8 of NI are saved. Higher-rate taxpayers save even more.
Benefits of salary sacrifice
Save on income tax
Your taxable salary is reduced, so you pay less income tax at your marginal rate — 20%, 40%, or 45%.
Save on National Insurance
Unlike personal pension contributions, salary sacrifice reduces your NI liability — an extra 8% or 2% saving.
Employer matches your saving
Your employer also saves 15% employer NI. Many pass this saving on as extra pension contributions.
Larger pension pot
The combination of your sacrifice, employer contributions, and tax savings means more going into your pension.
Restore your personal allowance
If you earn over £100,000, salary sacrifice can restore your tapered personal allowance — a 60% effective tax rate trap.
Consideration for high earners
A sacrifice can bring income below the £50,270 higher-rate threshold, saving 40% tax on that portion instead of 20%.
Salary sacrifice vs personal pension — which is better?
| Salary Sacrifice | Personal Pension | |
|---|---|---|
| Income tax relief | ✅ Yes | ✅ Yes |
| Employee NI saving | ✅ Yes (8% / 2%) | ❌ No |
| Employer NI saving | ✅ Yes (15%) | ❌ No |
| Affects State Benefits / mortgage | ⚠️ May reduce | ✅ No impact |
| Requires employer cooperation | ✅ Required | ❌ Not needed |
| Annual allowance usage | ✅ Counts | ✅ Counts |
For most employees, salary sacrifice is the superior option — the NI saving alone makes it worth it. The main exception is mortgage applicants, who may prefer personal contributions to preserve their stated gross salary.
Frequently asked questions
How does salary sacrifice pension work?
With salary sacrifice, you agree to reduce your gross salary and your employer pays the equivalent amount directly into your pension. Because your official salary is lower, you pay less income tax and National Insurance on that portion — meaning your pension costs you less than the face value.
How much NI do you save with salary sacrifice?
You save 8% NI on earnings between £12,570 and £50,270, and 2% on earnings above £50,270 (2025/26 rates). So a £2,500 salary sacrifice for a basic-rate taxpayer saves approximately £200 in employee NI. Your employer also saves 15% on their National Insurance contributions.
Does salary sacrifice affect mortgage affordability?
Yes, it can. Most lenders assess affordability based on your reduced (post-sacrifice) gross salary, which may lower the amount they are willing to lend. Some lenders will consider the full salary if you can show the sacrifice amount. Check with your mortgage adviser before committing to a high sacrifice level if you're planning to apply for a mortgage.
Is salary sacrifice better than a personal pension contribution?
For most employees, salary sacrifice is better because you save National Insurance contributions as well as income tax. A personal pension contribution only gives you income tax relief. The difference is typically 8–15% NI saving on top of tax relief, making salary sacrifice more efficient pound for pound.
Does my employer have to offer salary sacrifice?
No. Salary sacrifice is offered at the employer's discretion. Most workplace pension schemes do offer it, but not all. Check with your HR department or payroll team. If they don't offer it, a personal pension or SIPP is the alternative.