Enter your salary and pension details to see exactly how much you save through salary sacrifice — including income tax relief, NI savings, and the effective cost of boosting your pension.
Your Salary Sacrifice Analysis
Based on 2025/26 tax and NI rates. Estimates only — actual amounts depend on your full tax position.
£0
Annual Sacrifice Amount
£0
Net Cost to You (after tax + NI)
£0
Income Tax Saved
£0
Employee NI Saved
£0
Employer NI Saved
£0
Total Annual Pension Contribution
£0
New Contractual Salary
0%
Effective Contribution Rate
0p
Pension value per £1 sacrificed
How Salary Sacrifice Works
Salary sacrifice (also called salary exchange) is a formal arrangement between you and your employer. You agree to receive a lower cash salary in exchange for a non-cash benefit — in this case, a higher employer pension contribution.
Because your salary is legally reduced before tax and National Insurance are applied, you pay less tax and less NI — and so does your employer.
The Key Benefits
You save income tax at your marginal rate (20%, 40%, or 45%) on the sacrificed amount
You save NI at 8% (on earnings between £12,570 and £50,270) on the sacrificed amount
Your employer saves NI at 15% (from April 2025) on the sacrificed amount
Many employers pass their NI saving to you as extra pension contribution — free money
Worked Example — Basic Rate Taxpayer: You sacrifice £1,000/year extra into pension.
Tax saved: £200 (20%) | NI saved: £80 (8%) | Total savings: £280 Net cost to you: just £720 for £1,000 in your pension (28% effective discount)
If employer adds NI saving (15% = £150): total pension boost = £1,150 for your £720 net cost.
Higher Rate Taxpayer Example
If you pay 40% income tax and sacrifice £3,000/year:
Tax saved: £1,200 (40%)
NI saved: £240 (8%)
Net cost: just £1,560 for £3,000 in your pension
That's a 48% effective discount on pension contributions
2025/26 Rates Used in This Calculator
Tax/NI Rate
Rate
Applies To
Basic Rate Income Tax
20%
£12,570 – £50,270 (England/Wales/NI)
Higher Rate Income Tax
40%
£50,271 – £125,140
Additional Rate Income Tax
45%
Above £125,140
Employee NI (main rate)
8%
£12,570 – £50,270
Employee NI (upper rate)
2%
Above £50,270
Employer NI
15%
Above £5,000 Secondary Threshold (from Apr 2025)
Employer NI increased from 13.8% to 15% from April 2025, making salary sacrifice even more valuable as the employer saving is larger.
Potential Disadvantages of Salary Sacrifice
Important: Salary sacrifice isn't always the right choice. Consider these potential drawbacks before proceeding.
Mortgage applications: Lenders typically use your post-sacrifice (lower) salary to assess affordability. This could reduce how much you can borrow.
Life assurance and income protection: If these benefits are calculated as a multiple of salary, a lower salary means lower cover.
Defined benefit (DB) pensions: In some schemes, salary sacrifice reduces your pensionable pay, which could lower your final DB pension entitlement.
State benefits: If your salary drops below the Lower Earnings Limit (£6,396/year), you could lose National Insurance credits needed for your State Pension and statutory benefits.
Statutory payments: Statutory Maternity Pay, Paternity Pay and Sick Pay are calculated on your post-sacrifice salary, which could be lower.
National Minimum Wage: Salary sacrifice cannot take your pay below the National Living Wage (£12.21/hour for workers 21+ from April 2025).
Salary Sacrifice Worked Examples
Example A: £30,000 salary, basic rate, 5% sacrifice
Item
Without Sacrifice
With 5% Sacrifice
Gross salary
£30,000
£28,500
Annual sacrifice amount
—
£1,500
Income tax paid (approx)
£3,486
£3,186
Employee NI paid (approx)
£1,384
£1,264
Tax + NI saving
—
£420
Net cost of sacrifice
—
£1,080
Pension contribution added
—
£1,500 + employer NI if shared
Example B: £55,000 salary, higher rate, 8% sacrifice
Item
Amount
Annual sacrifice (8% of £55,000)
£4,400
Income tax saved (40% on portion crossing 40% band)
~£1,760
Employee NI saved (2% above UEL, 8% below)
~£352
Total savings
~£2,112
Net cost
~£2,288 for £4,400 pension contribution
Employer NI saved (15%)
£660 (potentially added to pension)
Frequently Asked Questions
How much does salary sacrifice save on National Insurance?
Employees save 8% NI (on earnings between the Primary Threshold of £12,570 and Upper Earnings Limit of £50,270) on the amount they sacrifice. Above the UEL, the NI saving drops to 2%. Employers save 15% NI (from April 2025) on the full sacrificed amount. If your employer passes their NI saving to your pension, you gain an extra 15% on top of your own sacrifice — effectively more going into your pension than you gave up.
Does salary sacrifice affect my mortgage application?
Yes. Salary sacrifice reduces your contractual salary, and most mortgage lenders use this lower figure to calculate affordability. If you are planning to apply for a mortgage in the near future, consider whether the pension savings outweigh the potential reduction in borrowing capacity. Some lenders are starting to make adjustments for salary sacrifice, but this is not universal — check with your mortgage broker or lender first.
What is the annual allowance for pension contributions?
For 2025/26, the pension Annual Allowance is £60,000 or 100% of your UK earnings — whichever is lower. This covers both employee and employer contributions combined. If you have previously flexibly accessed a defined contribution pension, the Money Purchase Annual Allowance (MPAA) of £10,000 applies. Exceeding the Annual Allowance results in a tax charge equal to your marginal income tax rate on the excess.
Can I stop or change my salary sacrifice arrangement?
Yes, but the rules depend on your employer's specific scheme. Most employers allow you to change your sacrifice level at set review points (e.g. annually). Life events such as marriage, divorce, or having a child may allow mid-year changes. Your employer must agree to any changes, and these require an amendment to your employment contract. Check your salary sacrifice agreement or speak to HR.
Does salary sacrifice affect State Pension or other benefits?
If your salary after sacrifice drops below the Lower Earnings Limit (£6,396/year for 2025/26), you lose NI credits needed for your State Pension record and certain statutory entitlements. At higher salaries this is rarely a concern. Salary sacrifice may also affect means-tested benefits if it reduces your income — though most salary sacrifice users are not on means-tested benefits. Check with a financial adviser if you are close to a benefit income threshold.
Can all employees use salary sacrifice?
No. Your employer must agree to offer a salary sacrifice scheme and formalise it with a contract amendment. Salary sacrifice also cannot reduce your pay below National Minimum Wage — from April 2025 this is £12.21/hour for workers aged 21 and over, £10.00 for those aged 18-20. Workers earning close to the minimum wage may be unable to sacrifice. Self-employed workers and company directors who are the sole employee are generally unable to benefit from salary sacrifice in the same way.
Is salary sacrifice the same as relief at source pension contributions?
No. With relief at source (used by many workplace and personal pensions), you contribute from your net pay and the pension provider claims basic-rate tax relief (20%) and adds it to your pot. Higher and additional rate taxpayers must claim extra relief via self-assessment. Crucially, relief at source does NOT save National Insurance — you pay NI on your full salary. Salary sacrifice avoids both income tax AND NI on the sacrificed amount, making it more efficient for most employees, particularly basic-rate taxpayers who gain the NI saving they would not get via relief at source.
MB
Mustafa Bilgic
Financial Content Writer | Pensions & Tax Specialist
Updated: 20 February 2026 | Published: 1 January 2025