Salary sacrifice: the cheapest way to fill your pension.
Every pound you sacrifice saves Income Tax plus NI — both yours and your employer’s. A £1,000 sacrifice into your pension can cost you less than £550 in take-home pay. Here’s exactly how much.
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How it works
How salary sacrifice works
You agree with your employer to reduce your gross salary by an amount, and they pay that amount directly into your pension as an employer contribution. Because your gross salary is lower, both you and your employer pay less National Insurance.
Savings vs a personal contribution
A personal pension contribution (Relief At Source or Net Pay Arrangement) saves Income Tax only. Salary sacrifice saves Income Tax AND employee NI (8% basic, 2% higher) AND employer NI (15%). At the basic rate that's a combined saving of 43%.
Employer NI pass-through
Many employers are legally required or voluntarily choose to pass their NI saving back into the employee's pension pot. Check your employer's policy — this can add £150 per £1,000 sacrificed.
Minimum wage floor
Salary sacrifice cannot reduce your gross pay below National Minimum Wage / National Living Wage. Your employer must reject or limit any sacrifice that would breach this.
Annual Allowance
Total pension contributions (yours + employer's) cannot exceed £60,000 per year (2025/26) without a tax charge. Salary sacrifice contributions are employer contributions and count toward this limit.