Salary sacrifice pension calculator
Paying into a pension through salary sacrifice is cheaper than it looks, because you avoid both income tax and National Insurance. This shows the real cost.
Why it costs less than you put in
Salary sacrifice means agreeing to a lower gross salary in return for your employer paying the difference into your pension. Because the money never counts as your taxable pay, you pay no income tax and no employee National Insurance on it. A normal pension contribution only gets the income tax back, not the National Insurance, so salary sacrifice is the more efficient route for most people.
Worked example
On a £50,000 salary, sacrificing £5,000 puts the full £5,000 into your pension. You are a basic-rate taxpayer here, so you save 20% income tax and 8% National Insurance on it, about £1,400. Your take-home therefore falls by only £3,600. The saving is even bigger for higher earners, and largest of all in the £100,000 to £125,140 band where the Personal Allowance is being withdrawn.
Common questions
How does salary sacrifice save me money?
You give up part of your gross salary before tax, so you pay no income tax and no employee National Insurance on the sacrificed amount. Your pension receives the full sum, so a pound in your pension costs you less than a pound in take-home pay.
How much does £5,000 into my pension cost me?
On a £50,000 salary, sacrificing £5,000 lowers your take-home by only about £3,600, because you save £1,400 in tax and National Insurance. Every £1 in your pension costs you about £0.72.
Is salary sacrifice better than normal pension contributions?
Usually yes, because normal contributions get income tax relief but not the National Insurance saving. Salary sacrifice saves both. Check it does not push your pay below the National Minimum Wage, which is not allowed.