- Income Tax
- £14,432
- Employee NI
- £3,511
- Student loans
- £0
- Entering pension
- £7,500
Optimise · Calculator 14
How much does £1 in your pension really cost?
Compare an ordinary pension contribution with salary sacrifice, including Income Tax, employee NI, student loans and any employer NI saving shared into the pension.
1 Enter your figures2 Review assumptions3 Explore the result
Your figures
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Extra annual take-home with salary sacrifice
£150£13 a month more than the selected normal contribution method, while directing £7,500 into the pension.Employee NI saved£150£13 a month
Student-loan deduction saved£0No student loan selected
Employer NI saving£1,125£0 added to pension at the selected sharing rate
Effective take-home cost of £1 entering the pension
Normal contribution60p→Salary sacrifice58p
Salary sacrifice includes any employer NI saving shared into the pension. Future pension withdrawals may be taxable.Where annual salary goes
Normal contribution versus salary sacrifice
Normal contribution
Income Tax £14,432Employee NI £3,511Pension from pay £7,500Take-home £49,557
Salary sacrifice
Income Tax £14,432Employee NI £3,361Pension sacrificed £7,500Take-home £49,707
- Income Tax
- £14,432
- Employee NI
- £3,361
- Student loans
- £0
- Entering pension
- £7,500
Threshold effects worth checking
Salary sacrifice keeps £150 more of the contribution away from current deductions.
The difference comes from £150 of employee NI, £0 of selected loan deductions and £0 of additional Income Tax difference versus the chosen normal method.
Assumptions used
- Uses 2026/27 Income Tax, employee NI, employer NI and student-loan thresholds.
- Assumes standard employee National Insurance category A, one job and no bonus.
- The gross pension contribution is a percentage of annual salary.
- Relief at source assumes any additional higher-rate relief is successfully claimed.
- The employer shares the selected percentage of its modelled NI saving; many employers share none.
- Ordinary employer pension contributions, benefits, pension annual-allowance charges and future withdrawal tax are excluded.
- From April 2029, planned rules limit the salary-sacrifice pension amount exempt from employee and employer NI to £2,000 a year; this current-year calculator does not apply that future rule.
Salary sacrifice changes contractual pay and can affect statutory pay, mortgage references and other earnings-linked benefits. An employer must not reduce cash earnings below National Minimum Wage.
Common questions
UK salary sacrifice calculator FAQs
How does pension salary sacrifice work?
You agree to reduce contractual cash salary and your employer pays the sacrificed amount into the pension as an employer contribution. Under 2026/27 rules, the reduced cash salary is used for Income Tax and National Insurance in this illustration.
How much National Insurance does salary sacrifice save?
Employee NI is generally reduced at the rate applying to the sacrificed earnings: 8% within the main band and 2% above the upper earnings limit in 2026/27. The exact saving depends on where the contribution falls across the thresholds.
Does the employer save National Insurance too?
Usually, because employer NI is calculated on lower cash earnings. The 2026/27 main employer rate is 15% above the secondary threshold. Employers may keep the saving, share some or add all of it to the pension.
What does the effective cost of £1 entering the pension mean?
It divides the reduction in annual take-home pay by the amount entering the pension. A result of 58p means each £1 added costs 58p of current take-home under the model, before future pension withdrawal tax.
How is salary sacrifice different from net pay?
Both can provide Income Tax relief through payroll, but a net pay employee contribution does not normally reduce National Insurance earnings. Salary sacrifice changes contractual cash salary and can therefore reduce employee and employer NI.
How is relief at source treated?
The calculator treats the gross pension contribution as 100%, assumes the provider adds basic-rate relief and assumes any additional higher-rate relief is successfully claimed. Timing can differ from payroll take-home.
Does salary sacrifice reduce student-loan repayments?
It can reduce current deductions because salary-sacrificed pay is no longer contractual cash earnings in the model. This improves current cash flow but can leave more of the loan outstanding and does not make the loan itself cheaper.
Why can pension contributions be unusually valuable above £100,000?
The Personal Allowance is withdrawn by £1 for each £2 of adjusted income above £100,000 until it reaches zero at £125,140. A pension contribution can reduce relevant income in this zone, creating unusually high effective tax relief.
What changes from April 2029?
Planned rules limit employee pension contributions through salary sacrifice that remain exempt from employee and employer NI to £2,000 a year. Contributions remain exempt from Income Tax subject to the usual pension rules. This calculator applies 2026/27 rules only.
Can everyone use salary sacrifice?
No. The employer must offer it, cash earnings cannot be reduced below National Minimum Wage, and lower contractual pay can affect statutory payments, borrowing evidence and some employment benefits.