Salary sacrifice exchanges salary for an employer pension contribution. Calculate the income tax and NI you save in 2026/27 versus a regular personal contribution.
8 min readUpdated April 2026
Salary sacrifice (often called ‘SMART’ pensions) is one of the most tax-efficient ways to contribute to a pension. Instead of paying contributions from your post-tax salary, you reduce your gross salary by an agreed amount and your employer pays it directly into your pension — saving both income tax and National Insurance.
For a basic-rate taxpayer, salary sacrifice gives an effective relief of 28% (20% income tax + 8% NI). For higher-rate, it's 42% (40% + 2%). The calculator below quantifies it for your situation.
Salary Sacrifice Pension Calculator (2026/27)
See your income tax and NI savings.
Your details
£13k£200k
£0£3,000
Your savings
Combined annual saving
£0
income tax + NI
In pension annually
£0
at net cost £0
2026/27 rates: 8% NI band £12,571-£50,270, 2% above. Income tax 20%/40%/45%. Excludes Scottish bands and student loan.
How salary sacrifice works
You agree with your employer to give up a portion of salary — say £200/month. Your gross pay drops by £200, so you pay £200 less in taxable income (saving income tax and NI). Your employer pays the £200 (often plus their own NI saving) directly into your pension.
The 2026/27 employee NI rates used: 8% on earnings £12,571-£50,270, 2% above. Income tax bands: 20% to £50,270, 40% to £125,140, 45% above.
Bonus tip: Some employers pass on their NI saving (15% in 2026/27) into your pension too — effectively a 15% top-up on every pound you sacrifice. Always ask.
When salary sacrifice doesn't work
Salary sacrifice can affect mortgage applications, statutory benefits (sick pay, maternity pay), and life insurance based on salary. Don't sacrifice below the National Living Wage. Always check your employer's policy.
Frequently Asked Questions
Basic-rate taxpayers save 28% (20% income tax + 8% NI). Higher-rate save 42% (40% + 2%). Additional rate save 47% (45% + 2%). On £100/month sacrificed, that's £28-47 of savings vs personal contributions.
Almost always yes for tax-efficiency. The NI saving (8% or 2%) is the key advantage over relief-at-source contributions. The exception: very low earners below £12,570 don't pay tax/NI anyway.
Possibly. Some lenders use your reduced (post-sacrifice) salary in affordability calculations. Tell your broker upfront. Many lenders now look at gross-equivalent income.
No, it's optional. Most large employers offer it. If yours doesn't, you can ask — it's win-win as the employer also saves 15% NI.
Often yes, with employer agreement. Bonus sacrifice is particularly tax-efficient because it can reduce you below higher-rate or below the £100k personal allowance taper.
Limited by your annual allowance (usually £60,000), the National Living Wage floor, and your employer's policy. Most employers cap at 50-90% of gross.
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