Salary sacrifice calculator

What a pound into your pension really costs you, what your employer saves, and the legal limit on how much you can sacrifice. 2026/27 rates.

By James Burfield Rates from gov.uk, checked 16 July 2026 How this works

Why it beats a normal pension

A workplace pension taken from your pay after National Insurance saves you the income tax. Salary sacrifice reduces your contractual pay instead, so the money was never earnings, and it escapes National Insurance as well.

On a £5,000 contribution at the 8% rate that is £400 a year, for exactly the same amount landing in the pension.

Your employer saves too, and might share it

Employer National Insurance is 15% on earnings above £5,000 a year. Sacrificed pay is not earnings, so your employer saves 15% of whatever you sacrifice.

That is their money, not yours. But many employers pass some or all of it into the pension, and a scheme that does is worth noticeably more than one that does not. Set the share above to see the difference. It costs you nothing to ask.

The limit nobody mentions

Salary sacrifice cannot take your pay below the National Minimum Wage. Your employer is not allowed to action one that would, however much you want to contribute.

For someone 21 or over, the National Living Wage is £12.71 an hour from 1 April 2026. On 37.5 hours a week that is a floor of about £24,785 a year. Someone earning £28,000 can therefore sacrifice around £3,215 at most, which is a good deal less than the 20% of salary a generic calculator might suggest.

What you give up

Your contractual salary is genuinely lower, and several things key off it:

• Mortgage affordability is usually assessed on the reduced salary.
• Statutory maternity pay is based on average earnings, so sacrificing before or during the qualifying period can reduce it. See the maternity pay calculator.
• Death in service and income protection cover is often a multiple of salary.

None of these makes sacrifice a bad idea. They are reasons to check before sacrificing a large amount, which is not something a page trying to sell you the tax saving would tell you.

Questions

What is salary sacrifice?

You agree to a lower contractual salary, and your employer pays the difference into your pension instead. Because the sacrificed amount is never earnings, it escapes income tax AND National Insurance, where a normal workplace pension only escapes the tax.

How much does it actually cost me?

Less than the amount sacrificed, because tax and National Insurance were coming off it anyway. A basic-rate taxpayer gives up 72p of take-home for every £1 into the pension. A higher-rate taxpayer gives up 58p. Between £100,000 and £125,140 it can be under 40p, because the sacrifice also claws back Personal Allowance.

Is there a limit on how much I can sacrifice?

Yes, and it is a legal one that most calculators ignore. Sacrifice cannot take your pay below the National Minimum Wage. For someone 21 or over on £12.71 an hour and 37.5 hours a week, that floor is about £24,785 a year. Your employer cannot action a sacrifice that would breach it. Annual and lifetime pension limits apply separately.

Does my employer save money too?

Yes. Employer National Insurance is 15% on earnings above £5,000, and sacrificed pay is not earnings, so they save 15% of whatever you sacrifice. Some employers pass part or all of that into your pension. It is worth asking, because it costs you nothing and can add hundreds a year.

What are the downsides?

Your contractual salary is genuinely lower, and some things key off it. Mortgage affordability is usually assessed on the reduced figure. Statutory maternity pay is based on average earnings, so sacrificing before or during the qualifying period can reduce it. Some death-in-service and income protection cover is a multiple of salary. None of these are reasons not to do it, but they are reasons to check before sacrificing a large amount.

Is it better than a normal workplace pension?

On tax alone, yes, and the difference is exactly the National Insurance. Putting £5,000 into the pension by sacrifice rather than a net-pay scheme leaves you £400 a year better off at the 8% rate, for the same money in the pot.