Salary sacrifice, explained with real numbers
How £2,000 into a pension costs you £1,440.
You give up £2,000 of salary; your employer pays it into your pension instead.
No income tax or National Insurance on that £2,000, so your take-home drops by only £1,440.
Through net pay or relief at source the same £2,000 would cost you £1,600.
What salary sacrifice is
Salary sacrifice is an agreement with your employer: your salary goes down, and your employer pays the difference into your pension. Because the sacrificed amount is no longer your pay, it never goes through income tax or National Insurance.
Your employer saves too. They pay 15% employer National Insurance on pay above £5,000, and that stops on the part you sacrifice: £300 on £2,000. Your pay after the sacrifice cannot fall below the National Minimum Wage.
The real numbers at £40,000
Here is a £40,000 salary in 2026/27, without a pension and with 5% paid in through salary sacrifice.
| Line | Without | With 5% sacrifice |
|---|---|---|
| Salary | £40,000.00 | £38,000.00 |
| Income tax | £5,486.00 | £5,086.00 |
| National Insurance | £2,194.40 | £2,034.40 |
| Take-home | £32,319.60 | £30,879.60 |
| Into your pension | £0.00 | £2,000.00 |
Why it beats the other two ways
With a net pay arrangement your contribution is taken before income tax, but National Insurance is still worked out on your full salary. The same £2,000 costs you £1,600.
With relief at source the contribution comes out of your pay after tax, and the pension provider adds 20% tax relief on top. Again £2,000 costs you £1,600; higher-rate taxpayers claim the rest of their relief through Self Assessment.
The difference is the 8% National Insurance: £160 on £2,000.
Over £50,270 and in the 60% zone
Above £50,270 income tax is 40% and National Insurance 2%, so each £1 you sacrifice costs you 58p. On £60,000, sacrificing 10% puts £6,000 into your pension for £3,480.
Between £100,000 and £125,140 every £1 you sacrifice also wins back part of your personal allowance, so £1 costs you about 40p. On £110,000, sacrificing 10% puts £11,000 into your pension for £4,380. More in The 60% tax trap between £100,000 and £125,140.
What to watch
Your salary on paper is lower. Mortgage checks, bonuses worked out as a share of salary, life cover and statutory payments such as Statutory Maternity Pay can be based on the reduced figure.
The change goes through your employer: ask whether they offer salary sacrifice and how it is set up.
Try it with your salary: Pension contribution calculator →
Questions
How much does £100 a month into a pension cost with salary sacrifice?
£72 if you pay basic-rate tax (20% tax and 8% National Insurance saved), £58 if you pay higher-rate tax (40% and 2%).
Does my employer save money too?
Yes. Employer National Insurance is 15% of pay above £5,000, so the employer saves £300 on a £2,000 sacrifice. Some employers add part of that saving to your pension; ask yours.
Is salary sacrifice the same as a workplace pension?
It is one way of paying into one. The pension is the same; what changes is whether the money leaves your pay before or after tax and National Insurance.
Sources: GOV.UK salary sacrifice and the effects on PAYE · HMRC rates and thresholds for employers · GOV.UK income tax rates