Salary sacrifice versus net pay
Updated 12 November 2026 · Tax year 2026/27
Scope: salary sacrifice versus net pay pensions. Relief at source schemes are not modelled.
Checked 12 November 2026 · Tax year 2026/27 · Rest of UK · £35,000 salary · 5% employee pension · No student loan
Two schemes can both say “5%”. They do not leave the same cash in the month if one is salary sacrifice and one is a net pay arrangement. Sacrifice typically reduces the pay that income tax and National Insurance see. Net pay typically reduces taxable pay only.
Worked example
Jordan earns £35,000 in England and puts 5% (£1,750) into a workplace pension. No student loan. Standard allowance.
A — salary sacrifice
Pay treated as £33,250 for tax and NI.
- Income tax: 20% × (£33,250 − £12,570) = £4,136.00
- Employee NI: 8% × (£33,250 − £12,570) = £1,654.40
- Pension: £1,750.00
- Take-home: £27,459.60
B — net pay arrangement
Taxable pay £33,250. NI still sees £35,000.
- Income tax: £4,136.00 (same as A)
- Employee NI: 8% × (£35,000 − £12,570) = £1,794.40
- Pension: £1,750.00
- Take-home: £27,319.60
Same contribution into the pot. Sacrifice leaves £140 a year more — the 8% NI on the sacrificed £1,750. That is the mechanism, not a recommendation to change scheme.
A second case — £50,000 and 8%
Same country, still no student loan. Sam earns £50,000 and puts 8% (£4,000) into the pension. After the sacrifice, pay for tax and NI is £46,000, which is still under the NI upper earnings limit of £50,270, so the NI saving is still the main 8% rate rather than the 2% rate that starts above that limit.
- Salary sacrifice: tax £6,686.00, NI £2,674.40, pension £4,000, take-home £36,639.60
- Net pay: tax £6,686.00 (same, because both designs reduce taxable pay), NI £2,994.40 (NI still sees £50,000), pension £4,000, take-home £36,319.60
The gap is £320 a year, which is 8% of the £4,000 sacrificed. Tax does not move between the two designs. If there is no pension at all, the same £50,000 comes to tax £7,486.00, NI £2,994.40 and take-home £39,519.60 — the pension itself, not the NI quirk, is most of the drop from that figure.
When a student loan is also on
In this engine, salary sacrifice reduces the pay the student loan sees. Net pay does not. Replay Jordan’s £35,000 with 5% pension and Plan 2 (threshold £29,385):
- Sacrifice: tax £4,136.00, NI £1,654.40, Plan 2 £347.85 (9% of £33,250 − £29,385), pension £1,750, take-home £27,111.75
- Net pay: tax £4,136.00, NI £1,794.40, Plan 2 £505.35 (9% of £35,000 − £29,385), pension £1,750, take-home £26,814.25
Sacrifice is ahead by £297.50 here: £140 of employee NI plus £157.50 of student loan. That still shows the mechanism. It is not a reason to switch scheme, and it ignores employer NI savings, which never reach the employee in this model.
What the model leaves out
Relief at source — where the pension contribution comes from pay that has already had tax and NI taken, and the scheme claims basic-rate relief — is a third design and is not in the calculator. An employer also cannot use sacrifice to push pay below the National Minimum Wage or National Living Wage; this page does not test that floor. Bonus sacrifice, annual allowance and the lifetime rules are out of scope. If you are thinking of leaving an auto-enrolment scheme altogether, see opting out of a workplace pension; for electric cars offered through salary sacrifice, see company car tax and benefit in kind. Perks other than pensions bought through salary sacrifice are usually taxed on the salary you give up: see salary sacrifice for benefits (OpRA) and the benefits in kind guide.
Worked example — sacrificing back to £50,270
A £60,000 salary sacrificing £9,730, the exact amount above £50,270. Take-home falls from £45,357.40 to £39,714.00: only £5,643.40 for £9,730 in the pension, because every sacrificed pound would have lost 40% tax and 2% NI. Paid through a net pay scheme instead, the same contribution saves tax but not NI, and take-home would be £39,519.40.
The employer also saves 15% employer NI on the sacrificed pay: £1,459.50 here. Some employers add part or all of that saving to the pension. Ask whether yours does.
What salary sacrifice changes besides tax
- Minimum wage. Sacrifice cannot take your cash pay below the National Minimum Wage. Employers must cap it.
- Mortgage applications. Lenders may use the lower post-sacrifice salary.
- Statutory pay. Statutory maternity, paternity and sick pay are based on actual earnings, so a large sacrifice can reduce them. Many employers pause sacrifice during leave.
- Salary-linked benefits. Life cover or pay rises may be calculated on the lower figure unless the scheme uses a “reference salary”.
The 2029 change
From 6 April 2029 only the first £2,000 a year of pension contributions through salary sacrifice will be free of National Insurance. Contributions above £2,000 will pay employee and employer NI like other contributions. The income tax relief is unchanged (GOV.UK). On 2026/27 figures the change does not apply yet.
Frequently asked questions
What about relief at source?
In a relief-at-source scheme you pay from taxed pay and the provider adds 20% basic-rate relief. Higher-rate taxpayers claim the extra through Self Assessment or by contacting HMRC. This site does not model it.
Is there a limit?
The pension annual allowance is generally £60,000 a year (tapered for very high incomes), and contributions cannot exceed your earnings for tax relief.
Is it worth it at basic rate?
Yes: at £30,000 a 5% sacrifice puts £1,500 in the pension for £1,080.00 of take-home.
How does salary sacrifice affect my pension?
The salary you give up is paid into your pension by your employer as an employer contribution, so the pension receives the whole sacrificed amount with no income tax or National Insurance taken off first. Some employers also pass on part or all of their own NI saving. Your cash salary is lower, which can reduce things worked out from salary, such as some life cover, mortgage affordability checks and statutory pay, so check your scheme booklet. Salary sacrifice cannot take your cash pay below the National Minimum Wage.
Cost of pension contributions by salary
How much take-home each contribution actually costs. Salary sacrifice also saves NI, so it always costs less than net pay for the same contribution.
| Salary | Contribution | Into pension | Take-home cost (sacrifice) | Take-home cost (net pay) |
|---|---|---|---|---|
| £30,000 | 3% | £900.00 | £648.00 | £720.00 |
| £30,000 | 5% | £1,500.00 | £1,080.00 | £1,200.00 |
| £30,000 | 8% | £2,400.00 | £1,728.00 | £1,920.00 |
| £30,000 | 10% | £3,000.00 | £2,160.00 | £2,400.00 |
| £60,000 | 3% | £1,800.00 | £1,044.00 | £1,080.00 |
| £60,000 | 5% | £3,000.00 | £1,740.00 | £1,800.00 |
| £60,000 | 8% | £4,800.00 | £2,784.00 | £2,880.00 |
| £60,000 | 10% | £6,000.00 | £3,480.00 | £3,600.00 |
Scroll sideways to see the whole table →
Compare both modes in the calculator
Your employer booklet decides whether a scheme is sacrifice or net pay. Sources (checked 12 November 2026): HMRC employer thresholds 2026 to 2027. Figures from the Take-Home Lab engine.