Answers · UK 2025/26
What is salary sacrifice pension UK?
Salary sacrifice pension is an arrangement where you give up part of your gross salary in exchange for a larger employer pension contribution. Because the sacrificed pay never reaches you, you save Income Tax (20%/40%/45%) and employee NI (8%/2%), and the employer saves 15% Class 1 NI — often shared back as a bigger contribution.
Full answer
A formal contract variation reduces your gross pay; the employer then pays an equivalent amount (plus any NI share-back) into your pension. The result is the same gross pension contribution but at a lower net cost. Worked example: £50,000 salary, want to contribute £5,000 to pension. Without sacrifice (relief-at-source): you pay £4,000 net, provider claims £1,000 = £5,000 in pension; no NI saving. With salary sacrifice: salary becomes £45,000, employer pays £5,000 + their £750 NI saving = £5,750 into pension; you save £400 employee NI; net cost only £3,600 for £5,750 in pension. Risks: lower notional salary affects mortgage borrowing, statutory maternity pay calculations, life cover linked to salary, and state-benefit entitlements based on earnings (rare at higher pay). You cannot sacrifice below National Minimum Wage. Higher-rate taxpayers above £100,000 use sacrifice to restore the Personal Allowance and dodge the 60% trap. Most schemes also waive sacrifice for bonuses, allowing one-off pension boosts at year-end.
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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.