2025/26 · Pension salary sacrifice tax & NI savings
Your Details
£
£
Your Savings
Tax Saving£1,000.00
NI Saving£400.00
Total Saving£1,400.00
Effective Cost to You£3,600.00
Employer NI Saving£750.00
💡 Salary sacrifice reduces your taxable income, saving you both income tax and National Insurance — unlike a regular pension contribution which only saves income tax.
Without Sacrifice
£39,519.60
per year net
£3,293.30 per month
With Sacrifice
£35,919.60
per year net
£2,993.30 per month
Sacrifice Amount
£5,000.00
Total Saving
£1,400.00
Effective Cost
£3,600.00
Employer NI Saving
£750.00
Item
Annually (£)
Monthly (£)
Weekly (£)
Gross / Reduced Salary
50,000.00
4,166.67
961.54
Sacrifice Amount
5,000.00
416.67
96.15
Income Tax (without)
7,486.00
623.83
143.96
Income Tax (with)
6,486.00
540.50
124.73
NI (without)
2,994.40
249.53
57.58
NI (with)
2,594.40
216.20
49.89
Net Pay Without Sacrifice
39,519.60
3,293.30
759.99
Net Pay With Sacrifice
35,919.60
2,993.30
690.76
Smart Tips
✅
You're in the 20% Basic Rate band — all your income above £12,570 is taxed at the standard rate.
Salary Sacrifice Calculator UK — Save Tax and NI on Your Pension
Salary sacrifice (also called salary exchange) is an arrangement where you agree to give up a portion of your gross salary in exchange for a non-cash benefit — most commonly a pension contribution. Because the sacrifice reduces your gross salary before tax and National Insurance are calculated, you save both Income Tax and Employee NI on the sacrificed amount. This makes salary sacrifice one of the most tax-efficient ways to save for retirement in the UK. This calculator shows you exactly how much you save in tax and NI by using salary sacrifice compared to a standard pension contribution, and how it affects your take-home pay.
How Does Salary Sacrifice Work UK — The Mechanics Explained
Under salary sacrifice, your contractual salary is reduced by the amount of the sacrifice. Your employer then pays that amount directly into your pension as an employer contribution. Because your contractual salary is lower, you pay Income Tax and NI on a smaller amount. Your employer also saves Employer NI (15% from April 2025) on the sacrificed amount — and many employers pass some or all of this saving back to employees as an additional pension contribution. The diagram below illustrates the flow of money under salary sacrifice versus a standard pension contribution.
Standard Pension Contribution
1Employer pays full gross salary
2Employee pays Income Tax on full gross
3Employee pays NI on full gross
4Employee contributes from net pay
5HMRC adds basic rate tax relief
Salary Sacrifice
1Employee agrees to lower contractual salary
2Income Tax calculated on reduced salary
3NI calculated on reduced salary (saves 8%)
4Employer pays sacrifice directly to pension
5Employer may add their NI saving too
Salary Sacrifice Pension Calculator — How Much Do You Save?
The saving from salary sacrifice depends on your marginal tax rate and NI rate. The table below shows the net cost of a £100/month pension contribution under salary sacrifice versus a standard contribution, at different salary levels.
Salary
Tax Rate
Net Cost (Standard)
Net Cost (Sacrifice)
Monthly Saving
£25,000
20%
£80
£72
£8
£35,000
20%
£80
£72
£8
£55,000
40%
£60
£58
£2
£70,000
40%
£60
£58
£2
£110,000
60% (trap)
£40
£38
£2+
Note: The saving is larger for Basic Rate taxpayers because they save NI at 8% (compared to 2% for Higher Rate taxpayers above £50,270). For earners in the £100k–£125,140 Personal Allowance taper zone, salary sacrifice can restore the Personal Allowance and deliver effective savings of up to 62p per £1 sacrificed.
Salary Exchange Calculator — Other Benefits Beyond Pensions
While pension contributions are the most common use of salary sacrifice, the arrangement can also be used for other employer-provided benefits, including: electric vehicles (through the Cycle to Work scheme or company car schemes), childcare vouchers (for existing scheme members), cycle to work schemes, and ultra-low emission vehicles (ULEVs). Each of these has its own rules and benefit-in-kind tax implications. The NI saving principle is the same — by reducing your contractual salary, you pay less NI on the sacrificed amount. Always check with your employer's HR or payroll team to confirm which salary sacrifice arrangements are available to you.
Salary Sacrifice Take-Home Pay — What Are the Downsides?
While salary sacrifice offers clear tax advantages, there are some important considerations. First, your contractual salary is lower, which can affect mortgage affordability assessments, life insurance payouts, and state benefit entitlements (such as Statutory Maternity Pay and the State Pension, both of which are based on your NI record). Second, salary sacrifice arrangements must be agreed with your employer and documented in a formal amendment to your employment contract. Third, you cannot reduce your salary below the National Minimum Wage through salary sacrifice. Finally, the pension contributions made via salary sacrifice are employer contributions, which means they are subject to the employer's pension scheme rules rather than the standard annual allowance rules for employee contributions.
Frequently Asked Questions
Is salary sacrifice worth it for pension contributions?
For most UK employees, yes. Salary sacrifice saves both Income Tax and Employee NI on the sacrificed amount. A Basic Rate taxpayer saves 28p per £1 sacrificed (20% tax + 8% NI). A Higher Rate taxpayer saves 42p per £1 (40% tax + 2% NI). The pension pot receives the full £1, so the effective return on the sacrifice is significantly higher than a standard contribution. The main consideration is the impact on your contractual salary for mortgage and benefit purposes.
Does salary sacrifice affect my State Pension?
Salary sacrifice reduces your contractual salary, which means your NI contributions are based on a lower figure. However, as long as your salary after sacrifice remains above the Lower Earnings Limit (£6,396 in 2025/26), you will still accrue qualifying years for the State Pension. If your salary after sacrifice falls below this threshold, you may lose qualifying years, which could reduce your eventual State Pension entitlement.
Can I use salary sacrifice for an electric car?
Yes. Many employers offer electric vehicle (EV) salary sacrifice schemes. Under these arrangements, you sacrifice salary in exchange for a company EV, and the benefit-in-kind (BIK) tax on pure electric vehicles is just 2% in 2025/26 (rising to 3% in 2026/27 and 4% in 2027/28). Combined with the NI saving on the sacrificed salary, EV salary sacrifice can be very cost-effective compared to buying or leasing a car privately.
What is the difference between salary sacrifice and net pay pension contributions?
Under salary sacrifice, your contractual salary is reduced and the employer pays the full contribution to the pension. Under net pay, you make a contribution from your gross salary before tax is calculated — so you get tax relief automatically, but no NI saving. Under relief at source, you contribute from your net pay and the pension provider claims basic rate tax relief from HMRC. Salary sacrifice is generally the most tax-efficient option because it also saves NI.