Salary Sacrifice Pension Calculator 2026/27

Last updated 23 September 2026. Rates checked against GOV.UK's rates and thresholds for 2026 to 2027.

What is pension salary sacrifice?

Salary sacrifice (sometimes called salary exchange) is an agreement with your employer to give up part of your salary. In return, your employer pays the same amount into your pension. Because the money never counts as your pay:

• you don't pay income tax on it
• you don't pay National Insurance on it
• it doesn't count towards student loan repayments
• your employer doesn't pay employer National Insurance on it (15% in 2026/27)

So £100 going into your pension costs you less than £100 in take-home pay. For a basic-rate taxpayer in England, it costs about £72. For someone earning between £100,000 and £125,140, it can cost under £40.

How much can you save?

Your saving depends on your tax band. For each £100 you sacrifice in 2026/27, in England, Wales and Northern Ireland:

If you repay a student loan, you save another £9 per £100 (£6 for a postgraduate loan), as long as your pay stays above the repayment threshold. Scottish rates are different, and the calculator covers both.

Worked example

Priya earns £45,000 and sacrifices 5% (£2,250 a year) into her pension. She saves £450 in income tax and £180 in National Insurance, so her take-home pay falls by only £1,620 while £2,250 goes into her pension. Her employer saves about £338 in National Insurance too. Some employers add that saving to the employee's pension.

Salary sacrifice vs a normal pension contribution

With a normal personal contribution, known as "relief at source", you pay from your taxed salary and the pension provider claims basic-rate tax back. Higher and additional-rate taxpayers claim the rest through Self Assessment. You get the same income tax relief as salary sacrifice, but:

• you don't save National Insurance (8% or 2%)
• it doesn't reduce student loan repayments
• your employer doesn't save any National Insurance, so there's nothing to share with you

That's why salary sacrifice usually works out better. The calculator shows the exact difference for your salary.

The £100,000 tax trap

Once your income goes over £100,000, you lose £1 of your £12,570 personal allowance for every £2 you earn above it. It's all gone at £125,140. That makes the effective tax rate on income in that band 60% (67.5% in Scotland), plus 2% National Insurance.

Salary sacrifice reduces your "adjusted net income". Sacrificing enough to bring your income down to £100,000 restores your full personal allowance. This is one of the most valuable uses of salary sacrifice. It can also help you keep access to Tax-Free Childcare and some funded childcare hours, which stop once either parent earns over £100,000.

Salary sacrifice and Child Benefit

If you or your partner earn over £60,000 and receive Child Benefit, you pay the High Income Child Benefit Charge. You repay 1% of your Child Benefit for every £200 of income above £60,000, so it's all repaid at £80,000. Because salary sacrifice lowers your adjusted net income, it reduces this charge or removes it completely. The calculator includes this when you enter your number of children.

What changes in April 2029: the £2,000 cap

What this means in practice:

• Income tax relief doesn't change. You still won't pay income tax on the amount you sacrifice.
• Small sacrifices aren't affected. If you sacrifice £2,000 a year or less, you keep the full National Insurance saving.
• Larger sacrifices lose some of the saving. Employees lose 8% (or 2% above £50,270) on the amount over £2,000. Employers lose 15%.
• Employers' own contributions keep their exemption. Normal employer pension contributions not made through salary sacrifice are still free of National Insurance.
• It's usually still worth it. The income tax saving is unchanged, so salary sacrifice will generally still beat paying into a pension from taxed pay.

The calculator shows how the cap would affect you, using today's rates for illustration.

Salary sacrifice in Scotland

Scotland has six income tax bands in 2026/27: 19%, 20%, 21%, 42%, 45% and 48%. National Insurance is the same across the UK. That means Scottish taxpayers often save a little more income tax per £1 sacrificed than people elsewhere, especially on the 42% and 45% bands. Between £100,000 and £125,140, the lost personal allowance makes the effective rate 67.5%. Choose Scotland in the calculator to use the Scottish bands.

How to set up salary sacrifice

1. Check your employer offers it. Many do for workplace pensions, but it's not compulsory. Look in your staff handbook or ask HR or payroll.
2. Decide how much to sacrifice. Use the calculator to see the effect on your take-home pay, and keep enough income for your monthly bills.
3. Ask whether your employer shares its saving. If they add some or all of their National Insurance saving to your pension, your pension grows faster at no cost to you.
4. Sign the agreement. Your contract is changed so your salary is lower and your employer's pension contribution is higher. Your payslip will show the new salary.
5. Review it each year, especially if your pay rises past £50,270 or £100,000, or before the 2029 changes.

Other benefits you can get through salary sacrifice

Since April 2017, most benefits provided through salary sacrifice are taxed on the higher of the salary given up or the value of the benefit, which removes most of the saving. A few types of benefit keep their tax advantages:

• employer pension contributions and pension advice
• Cycle to Work schemes
• ultra-low emission company cars (75g/km of CO2 or less), including electric cars
• workplace childcare, and childcare vouchers for people who joined a scheme before it closed to new members in October 2018

The April 2029 £2,000 cap applies only to pension contributions made through salary sacrifice.

Company directors and the self-employed

If you run your own limited company, you don't need a salary sacrifice arrangement. Your company can pay into your pension directly as an employer contribution. That's usually free of National Insurance and can reduce corporation tax, as long as it's reasonable for the work you do. Our dividend vs salary calculator helps you plan how to pay yourself. Sole traders can't use salary sacrifice. They get tax relief on personal pension contributions instead.

Things to check before you sign up

• National Minimum Wage. Salary sacrifice can't reduce your cash pay below the minimum wage (£12.71 an hour from April 2026 if you're 21 or over). The calculator checks this if you enter your hours.
• Mortgages and loans. Your contractual salary goes down, and some lenders use that figure. Your employer may be able to confirm your pre-sacrifice salary.
• Life cover and other salary-linked benefits. Check whether death-in-service or income protection is based on your salary before or after the sacrifice.
• Statutory pay. Salary sacrifice can reduce statutory payments such as Statutory Maternity Pay if it lowers your average earnings. Many employers have policies to protect this.
• Annual allowance. Most people can pay up to £60,000 a year into pensions, including employer contributions, before a tax charge applies.
• Changing your mind. Salary sacrifice arrangements usually can only be changed at set times, such as once a year, or after a major life event.

For employers: why offer salary sacrifice?

Employer National Insurance is 15% on earnings above £5,000 a year. Every £1,000 an employee sacrifices saves you £150. Many employers share part or all of that saving with staff by adding it to their pension. That makes the benefit more attractive at no extra cost. From April 2029, the saving applies only to the first £2,000 each employee sacrifices each year, so it's worth reviewing your scheme now. Our True Cost of an Employee calculator shows your full employment costs.

Frequently asked questions

Is pension salary sacrifice worth it?

For most employees, yes. You save income tax and National Insurance on the amount you sacrifice, so each £1 in your pension costs you less than £1 in take-home pay. It's usually better than a personal contribution because of the National Insurance saving.

How much National Insurance does salary sacrifice save?

In 2026/27, employees save 8% on sacrificed pay between £12,570 and £50,270, and 2% above that. Employers save 15% on pay above £5,000.

What is the £2,000 salary sacrifice cap?

From April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be exempt from National Insurance. Income tax relief is unaffected.

Can salary sacrifice take me out of the £100,000 tax trap?

Yes. Salary sacrifice reduces your adjusted net income, so sacrificing enough to bring it down to £100,000 restores your full personal allowance.

Can salary sacrifice take my pay below minimum wage?

No. Salary sacrifice can't reduce your cash pay below the National Minimum Wage rate for your age.

Can company directors use salary sacrifice?

Directors can, but they often don't need to. Their company can pay into their pension directly as an employer contribution, which is usually free of National Insurance.

Does salary sacrifice affect my student loan?

Yes. Student loan repayments are based on your pay after salary sacrifice, so you repay less each month. It doesn't change the amount you owe.

More free tools for UK businesses

• UK Take-Home Pay CalculatorNet pay after tax, NI and pension
• True Cost of an EmployeeEmployer NI, pension and overheads
• Dividend vs Salary OptimiserFor limited company directors
• All free business toolsSee all our calculators

General guidance, not financial advice. Sources: GOV.UK: Rates and thresholds for employers 2026 to 2027; Income Tax rates; Salary sacrifice and the effects on PAYE; High Income Child Benefit Charge; National Insurance Contributions (Employer Pensions Contributions) Act 2026.