How it works
Take-home pay is calculated on the full salary and on the reduced salary. The difference is the real cost to you; the sacrificed amount goes into your pension.
A worked example
On a £35,000 salary, sacrificing 5% (£1,750) into a pension reduces take-home pay by £1,260, so each £1 in your pension costs you 72p.
What to keep in mind
2026/27 rates. Assumes the full sacrifice goes into the pension and the employer does not add back its National Insurance saving. The government has announced a £2,000 cap on National Insurance-free pension salary sacrifice from April 2029. Salary sacrifice cannot take pay below the minimum wage.
How pension salary sacrifice works
With salary sacrifice, you agree to a lower salary and your employer pays the difference into your pension. Because your salary is lower, you pay less Income Tax and less National Insurance, so your take-home pay falls by less than the amount going into your pension.
Worked examples
On £35,000, sacrificing 5% (£1,750) cuts take-home pay by £1,260, so £1 in your pension costs 72p. On £60,000, sacrificing 5% (£3,000) cuts take-home pay by £1,740, so £1 costs 58p, because you save 40% tax plus 2% National Insurance.
Sacrificing income above £100,000
Between £100,000 and £125,140 you lose the Personal Allowance, creating an effective 60% tax rate. Sacrificing income in this band to bring your salary down towards £100,000 can be especially valuable.
Things to check
Salary sacrifice reduces your contractual salary, which can affect mortgage applications, life cover based on salary and some state benefits. It cannot take your pay below the National Minimum Wage.
Frequently asked questions
Is salary sacrifice worth it?
For most people paying tax and National Insurance, yes. Each £1 in your pension costs less than £1 of take-home pay, often 58p to 72p.
What is the difference between salary sacrifice and a normal pension contribution?
Normal contributions usually get Income Tax relief only. Salary sacrifice also saves National Insurance, so it costs you less.
Is salary sacrifice changing?
The government has announced that from April 2029, only the first £2,000 a year of pension salary sacrifice will be free of National Insurance. Income Tax relief is unaffected.
For general information and planning, not personalised financial or tax advice. Verify important decisions with a qualified adviser.