How does salary sacrifice into a pension save me National Insurance?

Full answer

Salary sacrifice means agreeing to reduce your contractual gross pay, with your employer paying the difference into your pension instead. Because the money never counts as salary, you avoid both income tax and employee National Insurance on it, which makes it more tax-efficient than paying personal contributions from net pay. For 2026/27, employee Class 1 NI is 8% on earnings between GBP 12,570 and GBP 50,270, then 2% above that. A basic or higher-rate earner within the 8% band therefore saves that 8% on top of their income tax relief. The employer also saves their 15% NI on the sacrificed amount, and many employers add some or all of that saving to your pension, boosting it further. Worked example: you earn GBP 40,000 and sacrifice GBP 4,000 into your pension. You save 20% income tax (GBP 800) and 8% NI (GBP 320), so the GBP 4,000 pension contribution reduces your take-home pay by only GBP 2,880. If your employer passes on its 15% NI saving of GBP 600, GBP 4,600 could end up in your pension. Contrast this with paying GBP 4,000 personally, where you would get income tax relief but not the NI saving. Watch the limits: contributions still count towards the GBP 60,000 annual allowance, and you cannot sacrifice below the National Living Wage of GBP 12.71 an hour. Reducing your salary can also affect mortgage borrowing and earnings-related benefits, so consider the wider impact. Use the salary-sacrifice calculator to compare take-home pay and pension outcomes, and the take-home-pay calculator to see the net effect. For the rules on salary sacrifice arrangements, check gov.uk.

Try the calculator