Answers · UK 2025/26
How does salary sacrifice for pension contributions work in the UK?
Salary sacrifice swaps part of your gross salary for an employer pension contribution. You save Income Tax (20%/40%/45%) and employee NI (8%/2%) on the sacrificed amount, and your employer saves their 15% employer NI — often returned to you, boosting the contribution further.
Full answer
Salary sacrifice (also called "salary exchange") is a contractual agreement where you give up part of your gross salary in exchange for a non-cash benefit — most commonly an employer pension contribution. The pension contribution avoids Income Tax, employee NI and employer NI. Example on £50,000 with £5,000 sacrifice: without sacrifice, £5,000 of salary loses 40% tax + 8% NI = £2,400, so £2,600 net to your pension via relief-at-source. With sacrifice: full £5,000 goes to your pension AND your employer saves £750 in 15% employer NI — many employers pass some or all of that into your pension too (so up to £5,750 per £5,000 sacrificed). Trade-offs: reduced gross pay can affect mortgage applications (lender uses post-sacrifice figure), Statutory Maternity/Sick Pay, and Life Assurance multiples. Bonus sacrifice avoids these issues. Cannot sacrifice below the National Minimum Wage. From April 2026 the £60,000 Annual Allowance still applies as the cap.
Try the calculator
More answers
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.