What is the Salary Sacrifice?
Salary sacrifice means giving up part of your gross salary in exchange for an employer pension contribution. Because the money never counts as pay, you save Income Tax and National Insurance — unlike ordinary pension contributions, which only save Income Tax.
Employers also save their 15% NI, and many pass some or all of it into your pension, boosting the benefit further.
Formula & worked example
Effective relief = 1 − (net cost / amount into pension)
Worked example: a £60,000 salary sacrificing £6,000. You save £2,400 in Income Tax and £120 in NI (only 2% here, since both salaries sit above the Upper Earnings Limit), so your take-home falls by £3,480 — yet £6,000 lands in your pension. That is 42% effective relief. Where the sacrificed pay sits below the £50,270 Upper Earnings Limit you save 8% NI instead of 2% — so 48% combined relief for a higher-rate taxpayer, or 28% for a basic-rate taxpayer.
How to use this salary sacrifice calculator
- Enter your gross salary and the amount to sacrifice.
- Ask HR whether the employer passes back their NI saving — many do.
- The higher your tax band, the greater the benefit.
- Check the net cost per month before committing.
Smart tips
- Salary sacrifice is strictly better than relief-at-source contributions because it saves NI as well as Income Tax.
- It is especially powerful between £100,000 and £125,140, where sacrificing restores your Personal Allowance for 60% effective relief.
- Sacrifice cannot take you below National Minimum Wage — employers will block contributions that would.
- A reduced gross salary can affect mortgage affordability and some benefits; check before sacrificing heavily.
- Ask whether your employer shares their 15% NI saving — it is free money if they do.
Frequently asked questions
What is salary sacrifice?
An arrangement where you give up gross salary in return for an employer pension contribution, saving both Income Tax and National Insurance.
Is salary sacrifice better than a normal pension contribution?
Yes. Ordinary contributions save Income Tax only; salary sacrifice also saves employee National Insurance.
Does salary sacrifice affect my mortgage application?
It can, since your gross salary is lower. Some lenders add pension contributions back; check before a large sacrifice.
What is the maximum I can sacrifice?
Limited by the £60,000 annual allowance and by not taking your pay below National Minimum Wage.
Want the theory behind the numbers? Browse the Money Blog for worked guides.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 15 Oct 2026. Sources: GOV.UK — Pension annual allowance. How we check these numbers.