Salary sacrifice calculator
What a pension contribution really costs you once tax and National Insurance are accounted for.
- Take-home with no pension
- £0
- Take-home, net pay arrangement
- £0
- Take-home, salary sacrifice
- £0
- Sacrifice is better by
- £0
The same pension, a different price
Both routes put the same money into your pension. What differs is what leaves your pocket. A net pay arrangement takes the contribution before income tax but after National Insurance. Salary sacrifice gives up the pay itself, so it escapes both. The National Insurance you would have paid on that slice stays with you.
How much that is worth depends on where the sacrificed pay sits. Below £50,270 it escapes National Insurance at 8%. Above that the rate is only 2%, so the advantage shrinks sharply for higher earners. This is why sacrifice looks dramatic on a £40,000 salary and modest on a £90,000 one, and why the calculator shows the difference rather than asserting it.
Where it becomes exceptional
Between £100,000 and £125,140 the personal allowance is withdrawn at £1 for every £2 earned, which stacks on top of 40% tax to produce an effective marginal rate of 60%. A sacrifice across that band restores allowance as well as avoiding tax, so £1,000 into the pension can cost roughly £400 of take-home. There is no other legal move in the UK system with that return.
What to check before signing up
Your official salary genuinely falls, and a handful of things are calculated from it. Mortgage borrowing is the usual worry, though most lenders will use the pre-sacrifice figure if you ask. Statutory maternity pay, redundancy pay and death-in-service cover are sometimes based on the reduced salary, so check how your employer defines them. Sacrifice also cannot take your pay below the National Minimum Wage, which caps it for lower earners.
Worth asking one question at work: employers save National Insurance on sacrificed pay too, and some pass part or all of it into your pension. It costs them nothing and it is the single easiest improvement to your retirement pot available.
Common questions
- What is salary sacrifice?
- You formally give up part of your salary and your employer pays it into your pension instead. Because the pay never exists, it is never taxed and never attracts National Insurance, so more reaches the pension for the same cost to you.
- How is it different from a normal workplace pension?
- A net pay arrangement takes the contribution out of your pay before income tax but after National Insurance. Salary sacrifice avoids both. The pension receives the same amount either way, so the difference lands entirely in your take-home.
- What is the catch?
- Your official salary drops, which can affect mortgage borrowing, life cover, maternity pay and statutory redundancy pay. Most lenders understand sacrifice and will use the pre-sacrifice figure, but ask before you apply. Sacrifice also cannot take you below the National Minimum Wage.
- Why is it so effective just over £100,000?
- Between £100,000 and £125,140 the personal allowance is withdrawn, giving an effective marginal rate of 60%. A sacrifice that brings you back under £100,000 restores the allowance, so a £1,000 contribution can cost you as little as £400 of take-home.
- Does my employer have to pass on their saving?
- No, but many do. Employers save National Insurance too, and some add part or all of that to your pension. It is worth asking, because it is free money that costs your employer nothing.