Salary Sacrifice Pensions: A Like-for-Like Tax and NI Comparison
Reviewed against the official guidance linked in this article. Rates and eligibility can change. Check the linked official sources for your circumstances. See our editorial policy.
Compare the same £2,400 pension contribution through salary sacrifice, net pay and relief at source, using 2026/27 assumptions.
Pension salary sacrifice means exchanging some contractual cash pay for an employer pension contribution. It can reduce employee National Insurance as well as Income Tax. To measure the saving fairly, compare the same gross amount going into the pension.
An ordinary pension contribution can already receive Income Tax relief. The extra employee saving from salary sacrifice is often National Insurance, rather than a second layer of Income Tax relief.
Example: £35,000 salary and £2,400 into the pension
Assume 2026/27, England, Wales or Northern Ireland, the standard Personal Allowance, a typical employee below State Pension age and no loans, benefits or other adjustments. All figures use annual thresholds. The £2,400 contribution is fixed for the comparison, rather than a percentage of qualifying earnings.
| Method | Gross pension amount | Annual take-home estimate |
|---|---|---|
| No employee-funded pension in this comparison | £0 | £28,719.60 |
| Net pay contribution of £2,400 | £2,400 | £26,799.60 |
| Relief at source: £1,920 paid plus £480 basic-rate relief | £2,400 | £26,799.60 |
| Salary sacrifice of £2,400 | £2,400 | £26,991.60 |
Other employer pension contributions are excluded so that the comparison keeps the pension amount the same. Monthly take-home averages £2,233.30 with net pay or relief at source, versus £2,249.30 with salary sacrifice.
The additional employee saving is £192 a year, or £16 a month: 8% of £2,400. Comparing a £2,400 salary sacrifice with a £2,400 after-tax payment would be misleading, because that after-tax payment receives relief and puts £3,000 into the pension.
Sources: HMRC pension methods and 2026/27 payroll rates.
Why the deduction changes
Under salary sacrifice, cash salary falls from £35,000 to £32,600. Income Tax is £4,006 and employee NI is £1,602.40 in this annual illustration. Subtracting those amounts leaves £26,991.60.
A net pay contribution also reduces pay subject to Income Tax, but normally leaves NI based on the original salary. Relief at source takes the employee payment after tax and NI, then the provider adds basic-rate relief. Higher-rate or Scottish relief can need additional handling.
At higher salaries, the extra NI saving can be 2% for the slice above the upper earnings limit, rather than 8%. Contributions crossing tax bands or restoring Personal Allowance need their own calculation.
The same £2,400 pension amount at three salaries
These comparisons use the same assumptions as the £35,000 example and a fixed £2,400 gross pension amount. They exclude other employer contributions. Relief-at-source figures show the eventual cash position after all applicable Income Tax relief has been obtained, rather than guaranteeing that every pound of relief arrives through that month's payslip.
| Starting salary | Take-home without this contribution | Take-home with net pay or fully relieved relief at source | Take-home with salary sacrifice | Additional annual NI saving from sacrifice |
|---|---|---|---|---|
| £35,000 | £28,719.60 | £26,799.60 | £26,991.60 | £192 |
| £60,000 | £45,357.40 | £43,917.40 | £43,965.40 | £48 |
| £110,000 | £72,357.40 | £71,397.40 | £71,445.40 | £48 |
At £60,000, the whole £2,400 contribution falls within the 40% Income Tax band. A £1,920 payment under relief at source receives £480 from the provider, and a further £480 of tax relief can be due. After that relief, the cash cost is £1,440. Salary sacrifice costs £1,392 because it also saves £48 of employee NI at 2%.
At £110,000, the gross contribution also restores £1,200 of Personal Allowance under these assumptions. Income Tax falls by £1,440, so the eventual cash cost of an ordinary eligible £2,400 gross contribution is £960. Salary sacrifice reduces that cost to £912 through the additional £48 NI saving. Other income or a different tax code can change this result.
The contribution is identical in every comparison. The different cash cost comes from the bands crossed, the allowance taper and NI treatment, rather than a different amount arriving in the pension. These figures were calculated with this site's shared salary engine; the relief-at-source comparison assumes the equivalent full eligible relief is claimed.
Employer savings
At the standard 15% employer NI rate, reducing NI-able salary by £2,400 can reduce the employer's NI liability by £360 before reliefs. Whether any saving is added to your pension depends on the scheme. It is not an automatic extra contribution.
What to check with payroll
- Cash pay after sacrifice must satisfy National Minimum Wage rules.
- Ask whether statutory pay, life cover, pay rises and other benefits use reduced cash pay or a reference salary.
- Check whether your employer can confirm a reference salary for lending purposes. Lenders do not all assess salary sacrifice in the same way.
- Confirm when you can change or stop the arrangement.
- Check pension allowances across all your schemes and employer contributions.
See HMRC's salary sacrifice rules and pension annual allowance guidance. These examples use 2026/27 rules; future changes need a fresh comparison.
Use our salary calculator for the available pension scenario settings, then check the proposed arrangement with payroll. The figures estimate current cash pay, not future pension returns.