Key takeaways
- £100 a month of salary sacrifice costs £72 a month of take-home pay at basic rate, and £58 a month at higher rate.
- Every £1 put into a pension through salary sacrifice costs 72p of take-home pay at basic rate, and 58p at higher rate.
- Salary sacrifice usually beats ordinary pension contributions by the National Insurance saving — £8 a month at basic rate on £100 a month.
- Sacrifice must not take your cash pay below the National Minimum Wage, and it cannot be changed more than once a year except for a lifestyle change.
Putting £100 a month into your pension through salary sacrifice costs £72 a month of take-home pay if you are a basic-rate taxpayer, and £58 a month if you pay higher-rate tax — because the tax and National Insurance you save pay for part of it.
Salary sacrifice sounds like a sacrifice. The name does it no favours. In practice, it is usually the cheapest way to put money into a pension — cheaper than the ordinary pension deduction on your payslip — and the reason is a quirk of National Insurance that most people never notice. This article works out the real cost, pound for pound, at three salaries, so you can decide whether the extra £100 a month is worth it for you.
What salary sacrifice actually is
With salary sacrifice, you agree with your employer to give up part of your salary — say £100 a month — and your employer pays that £100 straight into your pension instead. Your contractual salary falls by £100 a month. Because income tax, National Insurance and student-loan deductions are all worked out on the reduced salary, you pay less of each. Your employer also pays less employer National Insurance, which is why many employers add some or all of their saving to your pension too — worth asking about, because it is free money if they do.
The important point is that the £100 is not lost. It goes into your pension pot, where it belongs to you (subject to the usual pension rules: you generally cannot touch it before age 55, rising to 57 in 2028). The only question is how much of your take-home pay it costs you to move that £100. And the answer is: much less than £100.
The maths: £100 a month at three salaries
Take a £35,000 salary. Without any pension, your take-home pay is £28,719.60 a year. Sacrifice £100 a month (£1,200 a year) and your salary becomes £33,800 for tax purposes. Your income tax falls from £4,486.00 to £4,246.00 — a saving of £240.00 a year. Your National Insurance falls from £1,794.40 to £1,698.40 — a saving of £96.00 a year. So the £1,200 going into your pension costs you £1,200 − £240 − £96 = £864.00 a year of take-home pay. That is £72.00 a month.
Every £1 you put into your pension this way costs you 72p of take-home pay.
| Salary | Tax saved | NI saved | Take-home cost / year | Take-home cost / month | Cost per £1 into pension |
|---|---|---|---|---|---|
| £35,000 | £240.00 | £96.00 | £864.00 | £72.00 | 72p |
| £50,000 | £240.00 | £96.00 | £864.00 | £72.00 | 72p |
| £60,000 | £480.00 | £24.00 | £696.00 | £58.00 | 58p |
Why does £50,000 cost the same as £35,000? Because both are basic-rate taxpayers for this slice: the sacrificed £100 a month is taxed at 20% and charged 8% NI either way. At £60,000 the picture changes. The sacrificed pay would have been taxed at 40%, so you save £480.00 of tax — but NI above £50,270 is only 2%, so you save just £24.00 of NI. The total saving is £504.00, and the cost falls to £696.00 a year, or £58.00 a month. Higher-rate taxpayers get the best deal from salary sacrifice, which is one reason it is so popular among them.
There is one more figure worth knowing. Sacrificing £2,000 a year on a £40,000 salary — a bigger sacrifice, for comparison — leaves you with tax of £5,086.00, National Insurance of £2,034.40 and take-home pay of £30,879.60. The take-home cost of that £2,000 is £1,440.00 a year, or £120.00 a month. Same 72p-in-the-pound rate as the £35,000 case, because the whole sacrifice sits in the basic-rate band.
Sacrifice vs ordinary pension contributions
Most people do not sacrifice. They pay into their pension the ordinary way: the contribution comes off their pay before income tax, but National Insurance is still charged on the full salary. On a £35,000 salary, the usual auto-enrolment contribution is 5% of qualifying earnings — £1,438.00 a year — and take-home pay is £27,569.20 a year. That contribution saves income tax but not a penny of NI.
Sacrifice the same money instead and you keep the tax saving and add the NI saving. On £100 a month, the NI saving is £8.00 a month at basic rate — £96.00 a year — for exactly the same pension. It is not a fortune, but it is £96 a year you would otherwise have handed to HMRC, every year, for doing nothing different except the paperwork. Over a working life, that is thousands of pounds.
There is a second, subtler difference. Ordinary pension contributions do not reduce the salary figure your employer reports, so they do not change things that depend on your salary — like the income counted for the £100,000 personal-allowance taper, or for student-loan thresholds. Salary sacrifice does reduce that figure. If your salary is near £100,000, sacrificing can keep you out of the taper zone, where the marginal rate is effectively 60%. That is a separate, bigger saving, and it is why sacrifice is often the first thing a good adviser suggests to someone crossing £100,000.
What it does to the rest of your pay
Because sacrifice lowers your contractual salary, it can affect things tied to salary. Statutory maternity pay, statutory sick pay and some employer benefits are based on your earnings — a lower salary can mean slightly lower entitlements. Life cover or income protection provided as a multiple of salary would also fall. Mortgage lenders look at the reduced salary too, though most will accept a letter from your employer confirming the sacrifice. None of these is usually a reason to refuse sacrifice, but they are reasons to check before you sign, especially if you are planning a mortgage application or starting a family in the next year.
There is also the question of what happens to your State Pension. Salary sacrifice does not affect it as long as your reduced salary stays above the lower earnings limit (£129 a week). Below that, you could stop building qualifying years — another reason the minimum-wage floor matters.
The guardrails
Two rules protect you. First, salary sacrifice must not take your cash pay below the National Minimum Wage. If it would, your employer has to reduce the sacrifice or stop it. Second, the arrangement has to be a genuine agreement, made before the pay is earned — you cannot sacrifice pay you have already earned, and you generally cannot change the amount more than once a year except for a lifestyle change such as marriage or a new baby. Check both points with your employer before you agree.
One change is already law for the future: from 6 April 2029 only the first £2,000 a year of employee pension contributions made through salary sacrifice will stay exempt from National Insurance — above that, employee and employer National Insurance will apply. Nothing changes for 2026/27, and Income Tax relief is unaffected, but a large sacrifice will save less National Insurance from April 2029.
One more thing to check: whether your employer passes on their own NI saving. Employer National Insurance is 15% above £5,000 a year, so on a £1,200 sacrifice your employer saves £180.00 a year. Some employers add that to your pension; some keep it. It costs nothing to ask, and it makes the deal better still when they do.
Is it worth it?
For most people paying into a workplace pension, yes. You are putting money into your pension at a discount — 72p in the pound at basic rate, 58p at higher rate — and the pension pot gets the full £1. The money is locked away until retirement, which is the real cost: you cannot change your mind and spend it next month. But if you were going to save into a pension anyway, doing it through sacrifice is simply the cheapest way to do it. Run your own numbers on the calculator below before you decide.
Try it with your salary
See what salary sacrifice does to your take-home pay — tax, National Insurance, student loan and pension on any salary.
Questions
How much take-home pay does £100 a month of salary sacrifice cost?
At basic rate it costs £72 a month: you put £100 into your pension, and you save £20 of income tax and £8 of National Insurance on that £100. At higher rate it costs £58 a month, because you save £40 of tax and £2 of NI. The exact figures for 2026/27 are worked out in the tables below.
Is salary sacrifice better than ordinary pension contributions?
Usually yes, by the National Insurance saving. An ordinary auto-enrolment contribution saves you income tax but not NI; the same £100 through salary sacrifice also saves the 8% employee NI (2% above £50,270). On £100 a month at basic rate, that is an extra £8 a month in your pocket for the same pension.
Can salary sacrifice take my pay below the minimum wage?
No — it must not. Your employer cannot use salary sacrifice to take your cash pay below the National Minimum Wage. If a sacrifice would do that, the scheme must reduce or stop it. Tell your employer if you think yours has crossed the line.
Run your own numbers
Run your own numbers on the calculator before you decide — the money is locked away until retirement, so check the cost first.
Figures are for tax year 2026/27, tax code 1257L, England, Wales or Northern Ireland, no student loan unless stated. Rates: GOV.UK — last checked 5 November 2026. This site is not affiliated with HMRC or GOV.UK. Figures are estimates for guidance, not financial advice.