Salary sacrifice pensions let you give up part of your gross salary so your employer pays that amount straight into your workplace pension, usually saving both income tax and National Insurance and often boosting your take‑home pay or pension pot.
What it is
- You agree a lower contractual salary and, in exchange, your employer pays the “sacrificed” amount into your pension as an additional employer contribution.
- Because your taxable salary is lower, you generally pay less income tax and National Insurance, and your employer also saves National Insurance.
How it works
- Instead of you paying pension from net pay, your gross pay is reduced and your employer pays that same amount (and sometimes their NI saving) into your pension.
- Your total pension contribution can stay the same or increase, while your net take‑home pay may be slightly higher than if you contributed in the usual way.
Main benefits
- Higher pension funding for the same (or very similar) net cost, because of income tax and NI savings.
- Employer NI savings can, if your employer chooses, be added to your pension, helping your pot grow faster.
Key risks and limits
- Your post‑sacrifice salary cannot go below the National Minimum Wage, and providers or schemes may have their own minimum and maximum contribution rules.
- A salary sacrifice pension still counts towards your annual pension allowance (currently £60,000 a year across all pensions, including employer contributions), and sacrificing too much might affect things like mortgage affordability checks or earnings‑linked benefits.
Practical next steps
- Check whether your employer offers salary sacrifice for pensions and whether they pass on their NI saving.
- Ask HR or a regulated financial adviser to show you a before‑and‑after illustration for your pay and contributions, and to confirm any impact on benefits such as life cover or sick pay that are salary‑based.
