See how much income tax and National Insurance you save by paying into your workplace pension via salary sacrifice. Includes the long-term impact on your retirement pot with compound growth.
Salary sacrifice means your employer reduces your gross pay and pays the amount directly into your workplace pension instead. You never receive that money as income, so you save both income tax AND National Insurance. This is different from a normal pension contribution, where you contribute from net pay and claim tax relief.
Adjust your inputs to see the impact on your take-home pay and retirement pot.
How your pension pot accumulates each year, including compound growth on previous balances.
| Year | Contributions | Pot balance |
|---|
With a normal pension contribution, you contribute from your net pay and claim 20% basic-rate tax relief. The employer doesn't save anything. With salary sacrifice, both you and your employer save National Insurance, and you avoid income tax entirely on the sacrificed amount.
| Scenario | Your cost | Employer cost | In your pension |
|---|---|---|---|
| Normal contribution (net pay) | £100 | £100 | £120 (with relief) |
| Salary sacrifice | ~£75 | ~£85 | £100 |
Before you sacrifice, verify three things. One: is salary sacrifice available at your workplace? Two: does your employer pass on any of the NI saving to your pension? Many don't — some pass 100%. Three: check your mortgage lender won't reject you because your sacrificed pay looks lower to them. Always ask HR.
If your salary is between 100,000 and 125,140, salary sacrifice restores your Personal Allowance pound-for-pound as you sacrifice below 100,000. This gives you an effective 60% relief on each pound — because you save 20% income tax, 8% employee NI, 15% employer NI, and you get back the allowance taper.
You earn 105,000. You sacrifice 5,000 down to 100,000. Without sacrifice: PA is tapered down (you lose 2,500 of the 12,570 allowance). With sacrifice: you're at 100,000 exactly, so your full 12,570 PA is restored. That restoration is worth 2,500 * 20% = 500 in tax relief. Plus you save 5,000 * 8% = 400 in employee NI, 5,000 * 15% = 750 in employer NI (if shared). Total saving: ~1,650 on a 5,000 sacrifice = 33% effective relief. Actually more like 60% when the employer NI comes back.
Your lender sees your post-sacrifice salary. If you sacrifice 10%, they may reduce their lending offer by 10% too — potentially costing you more in mortgage interest than you save in tax. Always run the numbers past your lender first.
Statutory Maternity Pay (SMP), Statutory Sick Pay (SSP), and Statutory Paternity Pay (SPP) are calculated on your post-sacrifice salary, so they'll be lower. Also, some death-in-service benefits are tied to pensionable pay, which changes under salary sacrifice. Check your scheme documents.
Your sacrificed salary counts as your working income for minimum wage purposes. If you sacrifice enough to drop below the National Minimum Wage, you're breaking the law. Also, if you fall below the auto-enrolment threshold (currently 10,500), your employer no longer has to contribute.
You cannot sacrifice into a pension, then immediately draw out the tax-free lump sum and contribute the cash back. HMRC treats this as a "planned arrangement" and claws back the tax relief. The rules allow you to contribute back after 6 months, or a trivial commutation must be at least 2 years after sacrifice.
The annual allowance for pension contributions is 60,000 in 2026/27. If you exceed this (including employer contributions), you'll have a tax charge of 40% on the excess. However, you can carry forward unused allowance from the past 3 years. For most employees, salary sacrifice well under the allowance is safe.
Pension calculator — full retirement projection with multiple income sources · Tax calculator — see your full tax bill and take-home · Compound interest calculator — growth projections with any starting pot · ISA vs GIA — tax on investing outside an ISA.
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