Salary Sacrifice Calculator

Salary sacrifice is an arrangement where you agree with your employer to give up part of your gross salary in exchange for a non-cash benefit — most commonly additional pension contributions. Because your taxable salary is reduced, you pay less income tax and National Insurance on that portion of your earnings.

Instead of you making a personal pension contribution from your net pay, your employer reduces your gross salary by the agreed amount and pays it directly into your pension. This means neither you nor your employer pay National Insurance on that amount, and you don't pay income tax on it either — making it a highly tax-efficient way to save.

The main benefits are reduced income tax and lower National Insurance contributions on the sacrificed amount, which effectively means your take-home pay is higher compared to making standard pension contributions. Over time, these savings can significantly boost your overall retirement pot or monthly disposable income.

Yes. Employers pay National Insurance on employee salaries, so when you sacrifice part of your salary, they also pay less employer NI. Some employers choose to pass on part or all of this saving to employees — either as an extra pension contribution or as a boost to take-home pay.

Salary sacrifice reduces your official gross salary, which can affect entitlements linked to salary level — such as statutory maternity/paternity pay, death-in-service benefits, and in some cases state pension (if salary drops below the Lower Earnings Limit). It's worth checking with your employer or a financial adviser if this is a concern.

You cannot sacrifice your salary below the National Minimum Wage. There's also an annual pension allowance limit (£60,000 for 2025/26) for total pension contributions — including employer contributions — beyond which you'd face a tax charge. Your employer's scheme may also have its own limits.

Simple salary sacrifice means you give up a fixed portion of your salary to be paid into your pension, reducing both your and your employer's NI contributions. SMART (Save More And Reduce Tax) is a variation where the employer's NI saving is automatically added to your pension, giving you an even larger pension contribution at no extra cost to either party.

Salary sacrifice is a formal change to your employment contract, so you generally can only change or stop it at agreed intervals — often at the start of the tax year or during open enrolment windows. Check your employer's policy for the specific rules around making changes.