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Salary sacrifice for pensions

You agree to a lower salary and your employer pays the difference into your pension. This reduces the pay used to calculate income tax and National Insurance. Your employer can also save their 15% National Insurance on that amount. The other two ways of paying in, net pay and relief at source, save the income tax but not the National Insurance.

Paying £4,500 into a pension from a £45,000 salary, 2026/27, England
MethodIncome taxNational InsuranceTake-homeInto the pension
No pension£6,486.00£2,594.40£35,919.60£0.00
Salary sacrifice£5,586.00£2,234.40£32,679.60£4,500.00
Net pay£5,586.00£2,594.40£32,319.60£4,500.00
Relief at source£6,486.00£2,594.40£32,319.60£4,500.00

The sacrifice row keeps £360.00 more than net pay for the same pension, which is the 8% employee National Insurance on the £4,500. The employer saves £675.00. Some employers pass part or all of that into the pension, and it is worth asking, because a full pass-through turns £4,500 of sacrifice into £5,175.00 of contribution.

What to check first

Sacrifice lowers your contractual salary. This can affect salary-based benefits, statutory pay and borrowing assessments. Ask your employer which benefits use your original salary and which use the reduced amount. It cannot take pay below the National Minimum Wage. Above the £50,270 upper earnings limit the National Insurance saving falls to 2%, so the advantage over net pay shrinks for higher earners, though the employer's 15% saving does not.

Your own figures

The calculator is set to the case above; change the figures to your own.

Your salary before tax, National Insurance and pension payments are taken off.
IncomeDividends from your own company or from shares outside an ISA are taxed on top of your pay.

£2,723 a month in your pocket

£32,680 a year. You keep 73% of £45,000.

Where your income goesYou keep: £32,680 a year, 72.6%. Income tax: £5,586 a year, 12.4%. Into your pension: £4,500 a year, 10.0%. National Insurance: £2,234 a year, 5.0%.

Of £45,000 a year

Annual amounts, using 2026/27 rates. Pension excludes employer payments and provider tax relief.

Where you live

Scotland sets its own income tax bands; Wales and Northern Ireland match England.

Anything else?

PensionSalary sacrifice, 10% from you and 3% from your employer. £487.50 a month into your pension.
How it comes out of your payYour employer or pension provider can confirm which method your scheme uses.

You give up part of your salary and your employer pays it into your pension. This reduces income tax and National Insurance.

Exclude employer payments. For an after-tax pension, enter £100 if you pay £80 and your provider adds £20.

£4,500.00 a year, £375.00 a month.

Your employer’s contribution as a percentage of your full salary. Your scheme may calculate its percentage on only part of your earnings.

£1,350.00 a year, calculated on your full salary.

A lower annual allowance may apply. Taking only tax-free pension money does not usually trigger it.

What this pension changes, a month
No pensionWith this pensionChange
In your pocket£2,993£2,723−£270
Into your pension£0£488+£488

The full breakdown

YearMonthWeek
Pay£45,000.00£3,750.00£865.38
Salary sacrifice to pension-£4,500.00-£375.00-£86.54
Income tax-£5,586.00-£465.50-£107.42
National Insurance-£2,234.40-£186.20-£42.97
In your pocket£32,679.60£2,723.30£628.45
Payroll deduction rate
17.4%
Personal allowance
£12,570.00
Employer pension contribution
£1,350.00
Pension annual allowance, before carry-forward
£60,000.00
Employer National Insurance
£5,325.00
Cost to your employer
£51,675.00
Income tax on your pay by band
BandAmountRateTax
basic rate£27,930.0020%£5,586.00
Totals£45,000.0012.41%£5,586.00

The total rate is income tax divided by gross annual income. It excludes National Insurance and pension deductions.