Written by UKSalarySacrificeCalculator Editorial. Reviewed against official UK guidance. Methodology
How Much Does Salary Sacrifice Save? Worked Examples 2026/27
Salary sacrifice saves income tax AND employee NI on every pound sacrificed. For a basic-rate taxpayer sacrificing £2,400 into pension, the actual take-home cost is only £1,680. This guide walks through the exact numbers.
The core saving: tax and NI on every pound
Salary sacrifice reduces your contractual gross salary. Because income tax and National Insurance are both calculated on gross pay, a lower gross means less of both. This is why salary sacrifice saves more than a standard pension contribution, a normal employee contribution does not reduce gross pay, so NI is still charged on the full amount.
For 2026/27, the savings per pound sacrificed are: 20p income tax (basic rate) + 8p employee NI = 28p per pound in the basic-rate band. For higher-rate taxpayers: 40p income tax + 2p employee NI = 42p per pound above £50,270. In both cases, the employer also saves 13.8p per pound on their employer NI bill.
Worked example: £35,000 salary, £2,400 pension sacrifice
Take someone earning £35,000 who sacrifices £2,400 per year (£200 per month) into a workplace pension via salary sacrifice. Their gross salary for PAYE purposes falls from £35,000 to £32,600.
Income tax saving: £2,400 × 20% = £480. Employee NI saving: £2,400 × 8% = £192 (the full £2,400 sits in the 8% band since their salary is well within the £12,570–£50,270 range). Total personal saving: £672. Net cost to take-home pay: £2,400 − £672 = £1,728 per year, or £144 per month. They are putting £200/month into pension but only losing £144 from their pay packet.
Employer NI saving: 13.8% × £2,400 = £331.20 per year. If the employer passes this back in full, the pension receives £2,731.20 from a sacrifice that costs the employee £1,728. That is a 58% immediate uplift, the employer's saved NI plus the tax and NI relief means each £1 of reduced take-home buys roughly £1.58 of pension.
Higher-rate taxpayer example: £60,000 salary, £5,000 sacrifice
For a higher-rate taxpayer earning £60,000 who sacrifices £5,000 per year: their gross falls from £60,000 to £55,000. The first £9,730 of the sacrifice (from £50,270 up to £60,000) saves 40% tax and 2% NI, and the remaining amounts are also in the higher-rate band.
Income tax saving: £5,000 × 40% = £2,000. Employee NI saving: £5,000 × 2% = £100 (all in the above-UEL band at 2%). Total saving: £2,100. Net cost to take-home: £5,000 − £2,100 = £2,900. The employer NI saving: 13.8% × £5,000 = £690, which if passed back takes the pension value to £5,690 at a cost of only £2,900 from take-home.
Salary sacrifice vs relief at source: the NI gap
Relief at source (RaS) is the method used by most personal pensions and many workplace defined contribution schemes. Under RaS, you contribute from net pay and the pension provider claims 20% basic-rate relief from HMRC. Higher-rate taxpayers claim additional relief via Self Assessment. But crucially, RaS contributions do not reduce your gross pay, so NI is still charged on the full salary.
On a £2,400 annual contribution, a basic-rate taxpayer using RaS saves only £480 in income tax (via the claimed relief). The same contribution via salary sacrifice saves £480 income tax plus £192 NI = £672 total. The salary sacrifice route is £192 per year better, 40% more saving on the same contribution. Over 20 years that difference alone compounds into meaningful additional retirement wealth.
For higher-rate taxpayers the RaS gap is smaller in absolute NI terms (only 2% NI above £50,270) but the total saving through salary sacrifice (42% per pound) still beats RaS (40% per pound with a Self Assessment claim required). Salary sacrifice is also simpler, no need to complete a Self Assessment return to reclaim the higher-rate top-up.
When the employer passes on their NI saving
Employers are not legally required to share their NI saving, but many do, particularly larger employers or those in competitive hiring markets. The most generous arrangements pass back 100% of the employer NI saving as additional pension contributions. Others offer 50% passthrough, and some retain it entirely.
A 100% passthrough on a £2,400 sacrifice adds £331.20 to the pension. Combined with the sacrifice itself, the pension receives £2,731.20 at a cost of £1,728 from take-home, an immediate return of 58%. Even a 50% passthrough (£165.60 extra) takes the pension to £2,565.60 at a cost of £1,728. In any case, it is worth asking HR explicitly: 'Does the company pass on any employer NI saving from salary sacrifice, and what percentage?'
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FAQ
How much does salary sacrifice actually save?
For a basic-rate taxpayer (20% income tax, 8% NI), every £1,000 sacrificed saves £280 in tax and NI, so the net cost to take-home pay is only £720. Higher-rate taxpayers save more: 40% tax + 2% NI = £420 saved per £1,000, so the net cost is only £580.
Do I save both income tax and NI with salary sacrifice?
Yes, this is the key advantage over a normal pension contribution. Salary sacrifice reduces your gross pay, so both income tax and National Insurance are assessed on a lower figure. A standard personal pension contribution only saves income tax, not NI.
Does my employer also save money?
Yes. Your employer saves 13.8% employer NI on the sacrificed amount. On a £2,400 sacrifice that is £331.20 saved per year. Many employers pass some or all of this saving back as an additional pension contribution, effectively giving you more pension for free.
How does salary sacrifice compare to relief at source?
Relief at source (used by personal pensions and most workplace pensions) saves income tax but not NI. Salary sacrifice saves both, so it is worth roughly £80–£240 more per year on a typical £3,000 contribution. If your employer also passes on their NI saving, the difference is even larger.