Salary Sacrifice Pension Calculator UK: Tax and NI Savings Explained (2026/27)
Model the real cost of increasing your pension contribution. Updated 17 April 2026.
How salary sacrifice works
Salary sacrifice is a formal agreement between you and your employer to reduce your contractual gross salary by a chosen amount. Your employer pays that amount directly into your workplace pension fund. From HMRC's perspective, your gross earnings for tax and NI purposes are the reduced salary, not the original one.
This is different from a standard pension contribution, where you pay into your pension from net salary and the pension provider claims basic-rate tax relief from HMRC on your behalf. With salary sacrifice, both income tax and National Insurance savings are immediate and automatic, because the contribution reduces your taxable gross before either is calculated.
Salary sacrifice is one of the most tax-efficient ways to save for retirement that is available to employed people in the UK. The key question is how much it actually costs you in take-home pay, after accounting for the tax and NI you save.
The savings at each tax rate
| Your income band | Tax saved / £1,000 sacrifice | NI saved / £1,000 sacrifice | Real cost to you | Pension gets |
|---|---|---|---|---|
| Basic rate (£12,571 to £50,270) | £200 | £80 | £720 | £1,000 |
| Higher rate (£50,271 to £100,000) | £400 | £20 | £580 | £1,000 |
| 60% trap (£100,001 to £125,140) | £600 (effective) | £20 | £380 | £1,000 |
| Additional rate (over £125,140) | £450 | £20 | £530 | £1,000 |
The 60% trap figure assumes your gross income is in the £100,001 to £125,140 range. Sacrificing to bring income back below £100,000 restores the full personal allowance, providing an effective 60% saving on income in that zone.
The 60% trap: why pension sacrifice is especially valuable above £100,000
Between £100,000 and £125,140, every £1 of gross income above £100,000 reduces your personal allowance by 50p. Combined with the 40% income tax rate, this creates an effective marginal rate of 60% on this income band. If your salary is £110,000, you are losing £600 of every £1,000 earned in this zone to tax.
Salary sacrifice into pension reduces your adjusted net income. If you sacrifice £10,000 into pension, your taxable income drops by £10,000. If this brings you from £110,000 to £100,000, you avoid the personal allowance taper entirely on that £10,000. The saving is approximately £6,200 on the £10,000 sacrifice (including NI), making the real cost of the £10,000 pension contribution only £3,800.
Full 60% tax trap explainer with interactive calculatorEmployer NI saving and pass-through
When you sacrifice salary, your employer also saves National Insurance. The employer NI rate in 2026/27 is 15% on earnings above £96/week (£5,000/year). When £5,000 of your salary is sacrificed to pension, your employer saves 15% x £5,000 = £750 in employer NI.
Some employers pass a portion of this saving back to employees in the form of additional pension contributions. Common arrangements pass between 25% and 100% of the employer NI saving into the employee's pension. If your employer passes 50% of the saving, a £5,000 sacrifice would result in an extra £375 being added to your pension on top of your own contribution. Check your pension scheme rules or ask your HR team whether this applies.
Limits and things to watch out for
Annual Allowance
The total pension contributions (yours plus employer's) that receive tax relief are capped at the Annual Allowance of £60,000 in 2026/27. If your employer contributes significantly, check you are not approaching this limit. Unused allowance from the previous three years can be carried forward.
National Living Wage floor
You cannot sacrifice salary below the National Living Wage. For 2026/27, the NLW is £12.21/hour for workers aged 21 and over. This limits sacrifice for lower-paid workers.
Mortgage affordability
Lenders typically use your reduced (post-sacrifice) salary for affordability calculations. A large sacrifice can reduce your mortgage borrowing capacity. Consider this before a major increase in sacrifice if you plan to remortgage or buy soon.
State benefits
Salary sacrifice reduces the income used for some means-tested benefit calculations. For most employed people this is not relevant, but it is worth checking if you receive any income-linked benefits.
Frequently asked questions
What is salary sacrifice for a pension?+-
Salary sacrifice is an arrangement where you agree with your employer to reduce your gross salary by a certain amount, which your employer then pays directly into your workplace pension. Because the contribution is made from gross salary before income tax and National Insurance are calculated, you receive tax relief at your marginal rate and also save NI (8% in the main band). This makes salary sacrifice more efficient than a standard personal pension contribution.
How much do I save in tax and NI through salary sacrifice?+-
The saving depends on your income band. If you are a basic-rate taxpayer (earning between £12,570 and £50,270), every £1,000 you sacrifice saves you £200 in income tax and £80 in NI, costing you only £720 in take-home pay. If you are a higher-rate taxpayer (earning £50,270 to £100,000), the saving is £400 in income tax and £20 in NI per £1,000 sacrificed, costing £580. If you are in the 60% trap band (£100,000 to £125,140), every £1,000 sacrificed saves you £600 effectively, costing only £400 in take-home.
Does salary sacrifice affect my mortgage application?+-
Yes, it can. When you apply for a mortgage, lenders typically assess affordability based on your actual salary, which for salary sacrifice purposes is the reduced (post-sacrifice) figure. If you have sacrificed £10,000 of a £60,000 salary, the lender may treat your income as £50,000. Some lenders will consider the full salary if you can demonstrate the sacrifice is adjustable, but this varies by lender. Discuss this with a mortgage broker before a major sacrifice.
What is the pension Annual Allowance for 2026/27?+-
The Annual Allowance is the maximum total pension contribution (your contributions plus employer contributions) that benefits from tax relief in a tax year. For 2026/27, the standard Annual Allowance is £60,000. If your adjusted income exceeds £260,000, the allowance tapers down. Unused Annual Allowance from the previous three tax years can be carried forward.