Salary sacrifice pension calculator

See what happens to your take-home pay, your pension contribution, and your tax and National Insurance bill when you sacrifice part of your salary into your pension instead of taking it as pay.

Figures for the 2026/27 tax year. Last reviewed 01-09-2026.

How salary sacrifice works

Salary sacrifice means agreeing to a lower contractual salary in exchange for your employer paying the difference straight into your pension. You never receive the sacrificed amount as pay, so it's never subject to income tax or employee National Insurance — both of which you'd otherwise pay on that slice of salary.

The saving comes from where the contribution now sits in the pay chain. A normal pension contribution comes out of pay that's already had tax and NI taken off (or is relieved back afterwards). A sacrificed amount never becomes pay at all, so nothing is ever due on it in the first place.

Because your employer's National Insurance bill is also based on what they pay you, sacrificing reduces their NI bill too. Many employers pass some or all of that saving back into your pension as an extra contribution on top of what you sacrificed — this calculator lets you set what percentage they pass on, since it varies a lot by employer and isn't guaranteed.

A worked example

Take a £45,000 salary with £3,000 a year sacrificed, and an employer who already pays a standard 3% pension contribution and passes on half of their own NI saving. Sacrificing £3,000 saves £600 in income tax (20% of £3,000) and £240 in employee National Insurance (8% of £3,000), so take-home pay falls by £2,160, not the full £3,000.

The employer's own NI saving on that £3,000 is £450 (15%), and half of that — £225 — gets added to the pension in this example. So the pension receives £3,000 (the sacrifice) plus £225 (the passed-on NI) plus the employer's normal 3% contribution of £1,350, for a total pension contribution of £4,575 a year. Compare that against £1,350 a year (just the employer's normal contribution) if no sacrifice happened at all — sacrificing has turned a £2,160 fall in take-home pay into an extra £3,225 a year going into the pension.

What to check before sacrificing salary

Sacrificing salary below the National Minimum Wage isn't allowed — HMRC requires your contractual pay after sacrifice to stay at or above the minimum wage for your age band, checked against your actual hours worked. This calculator gives an illustrative hourly-rate warning based on a standard 37.5-hour week, but it isn't a compliance check. If your post-sacrifice salary looks tight against a low hourly rate, check the real figure against your actual contracted hours before agreeing to sacrifice.

A lower contractual salary can also affect things that are assessed against your payslip figure rather than your total reward. Mortgage lenders typically use your post-sacrifice salary for affordability calculations, which can reduce how much you're offered to borrow. Some means-tested benefits and tax credits are also assessed on post-sacrifice pay. Neither of these is quantified here, because the effect depends entirely on the specific lender or scheme — but it's worth factoring in if either applies to you.

It's also worth checking what else in your employment contract is tied to your headline salary. Life insurance multiples, income protection cover, statutory redundancy pay and some bonus calculations are often based on contractual pay, so a lower salary on paper can quietly reduce these too, even where your actual take-home and pension position both improve. None of this makes sacrifice a bad idea — it just means the full picture is wider than take-home pay and pension contributions alone, and worth checking with your employer if any of it applies to you.

A future change: the salary sacrifice NI cap

The Autumn Budget 2025 announced a cap on how much salary sacrifice pension contributions can benefit from the NI exemption, due to start from 6 April 2029. Above the cap, sacrificed amounts would be treated more like a normal contribution for NI purposes rather than escaping NI entirely. This is a future change only — it doesn't affect the figures in this calculator today, and the exact mechanics should be confirmed against the final legislation nearer the date. If you're planning contributions years ahead, it's worth keeping half an eye on.

The Scottish tax position

The tax saving from sacrifice depends on your marginal income tax rate, and Scotland's bands differ from the rest of the UK. Scottish intermediate, higher, advanced and top-rate taxpayers save tax at 21%, 42%, 45% or 48% respectively on a sacrificed pound, rather than rUK's 20% or 40% — so the same sacrifice can produce a noticeably different tax saving depending on where you live. National Insurance rates and thresholds don't vary by nation, so the NI saving from sacrifice is identical either way.

Frequently asked questions

Is salary sacrifice always better than a normal pension contribution?

It usually saves more, because it avoids National Insurance as well as income tax — a normal relief-at-source contribution only gets income tax relief, not an NI saving. The exceptions are situations where a lower contractual salary would hurt you elsewhere, such as a mortgage application in progress or entitlement to an income-linked benefit.

Does salary sacrifice affect my State Pension?

Only if it pushes your salary below the lower earnings limit for the tax year, which is the threshold for building up qualifying years of National Insurance contributions. For most salaries well above that limit, sacrificing a modest amount doesn't affect your State Pension entitlement.

Can my employer refuse to pass on their NI saving?

Yes. There's no legal requirement for an employer to pass on any of their own NI saving from salary sacrifice — some pass on all of it, some pass on none, and many sit somewhere in between. It's worth asking your employer or checking your scheme documentation, since it directly affects how much extra ends up in your pension.

What happens to my other benefits if I sacrifice salary?

Anything based on your contractual salary — life cover multiples, income protection, some bonus calculations, and mortgage affordability assessments — can be affected, because those typically look at your post-sacrifice pay. Ask your employer whether pensionable pay for other benefits is protected at your pre-sacrifice level before agreeing to a large sacrifice.

Is there a limit to how much salary I can sacrifice?

Beyond the National Minimum Wage floor, most schemes let you sacrifice up to the point your contractual pay would fall below NMW. Separately, your pension contributions (sacrificed or not) are still subject to the pension annual allowance — £60,000 for most people in 2026/27 — above which a tax charge can apply.

Will the salary sacrifice NI cap change today's figures?

No. The announced cap doesn't start until 6 April 2029, so it has no effect on the calculations here. It's included in the assumptions panel purely as a heads-up for anyone planning several years ahead.