Salary Sacrifice Pension Calculator 2026/27

Pension Salary Sacrifice: The Most Efficient Way to Save for Retirement

Pension salary sacrifice (also called salary exchange for pensions) is the most tax-efficient way for employees to save into a workplace pension — and it benefits employers too. By making pension contributions through salary sacrifice instead of personal contributions, both parties save National Insurance.

Why Pension Sacrifice Beats a Personal Contribution

The Employer NI Saving — Pass It to the Employee's Pension

When an employee sacrifices salary, the employer pays less NI. A growing number of employers pass some or all of this saving into the employee's pension — a practice known as "NI top-up" or "employer matching of NI saving."

For a basic rate employee sacrificing £5,000/year, the employer saves £750 in NI (15%). If that £750 goes into the pension, the total contribution becomes £5,750 — at zero net cost to the employer. The employee gets an extra £750 per year in pension savings they would otherwise not receive.

The £100,000 Tax Trap: Where Pension Sacrifice Saves Most

Between £100,000 and £125,140 of income, the £12,570 personal allowance is withdrawn by £1 for every £2 earned. Each extra pound in that band is taxed at 40% and also costs 50p of allowance, so the effective income tax rate is 60%, plus 2% National Insurance. Sacrificing salary into a pension reverses it: every pound sacrificed in that band gets the allowance back.

Example: a £110,000 salary, sacrificing £10,000 into a pension (2026/27, England, Wales and Northern Ireland).

£10,000 goes into the pension for £3,800 of take-home pay. The employer also saves 15% employer NI on the amount sacrificed. Scottish taxpayers save more, because the Scottish rates in this band are higher. The trap is measured on adjusted net income, so a bonus or benefits in kind can push you into it even when your salary is below £100,000.

The £2,000 NI Cap From April 2029

The November 2025 Budget announced that from 6 April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Anything sacrificed above £2,000 will attract both employee and employer NI, as if it had been paid as salary. Income tax relief on the sacrifice is unchanged, and ordinary employer pension contributions stay NI-free.

Nothing changes before April 2029, so the savings this calculator shows apply in full for 2026/27, 2027/28 and 2028/29. As a rough guide at 2026/27 rates: a basic-rate employee sacrificing £5,000 a year would, from April 2029, pay NI on the £3,000 above the cap (8%, £240), and the employer would pay 15% on it (£450). Employers that pass their NI saving into the pension should review that arrangement before April 2029.

2027/28 employer NI: what changes from 6 April 2027

The 2027/28 figures for this page have not been announced yet. The Budget is on Wednesday 28 October 2026. We add each figure to our UK employer rates 2027/28 page on the day it is confirmed. Until 5 April 2027 this calculator uses the 2026/27 rates, which are the ones your payroll should be using now.

Setting Up Pension Salary Sacrifice

To implement pension salary sacrifice:

1. The employee must formally agree to reduce their contractual salary in writing
2. The employer increases their pension contribution by the same amount
3. The sacrifice must be a genuine alteration to the employment contract — a side letter or addendum is sufficient
4. The minimum wage must still be met after the sacrifice
5. Both parties must understand the impact on statutory pay (SMP, SSP) before agreeing

For the broader picture of salary sacrifice beyond pensions — including cycle to work and EV car schemes — see our salary sacrifice calculator. To work out standard auto-enrolment contributions on qualifying earnings, use the workplace pension calculator.