What salary sacrifice actually costs you
Sacrificed pay is given up before it is assessed, so it escapes Income Tax, National Insurance and student loan repayments together. This calculator shows both what you give up and what lands in the pension.
Figures stated for the 2026/27 UK tax year. Content last checked against official sources on .
What this calculator does
- Compares take-home pay with and without a salary sacrifice arrangement.
- Shows the Income Tax, National Insurance and student loan saved.
- Calculates the total landing in the pension including the employer contribution.
- Expresses the trade-off as a cost per pound of pension funding.
How the calculation works
The calculator runs your full PAYE position twice — once on the unreduced salary and once on the reduced salary — and compares the two, rather than adjusting a single figure. That matters, because the saving depends on which tax and National Insurance bands the sacrificed slice actually occupied. The sacrificed amount is removed from gross pay first. Income Tax is then charged on the reduced salary, so the saving is the sacrificed amount multiplied by whatever marginal rate that slice sat in. National Insurance is likewise charged on the reduced salary: a slice above the upper earnings limit saves only 2%, while a slice below it saves the full 8%. Student loan repayments fall by 9% of the sacrificed amount where a plan applies. The employer contribution is calculated as a percentage of the reduced salary and added to your sacrifice to give the total landing in the pension. Cost per pound is then the fall in take-home pay divided by that total.
The rule
Cost per £1 in the pension = (take-home before − take-home after) ÷ (sacrificed amount + employer contribution).
Step by step
- Compute the full PAYE position on the unreduced salary.
- Reduce gross salary by the sacrificed percentage.
- Recompute Income Tax, National Insurance and student loan on the reduced salary.
- Calculate the employer contribution as a percentage of the reduced salary.
- Compare take-home pay across the two runs and divide the difference by the total paid into the pension.
Worked example
Rachel earns £60,000 and is considering sacrificing 10% of salary, with her employer contributing 3% of the reduced figure.
What was entered
| Gross annual salary | £60,000 |
|---|---|
| Salary sacrifice | 10% |
| Employer contribution | 3% |
| Jurisdiction | England/Wales/NI |
| Student loan plan | None |
The arithmetic
- Sacrificing 10% gives up £6,000, reducing salary from £60,000 to £54,000.
- That £6,000 slice sat entirely in the 40% higher rate band, so Income Tax falls by £2,400.
- It also sat above the £50,270 upper earnings limit, so National Insurance falls by only 2% of £6,000 = £120.
- Take-home pay falls from £45,357.40 to £41,877.40 — a reduction of £3,480 a year, or £290 a month.
- The employer adds 3% of the reduced £54,000 salary, which is £1,620, so £7,620 lands in the pension.
- Each £1 in the pension therefore costs about 46p of take-home pay.
What the calculator returns
| Salary sacrificed | £6,000.00 |
|---|---|
| Employer contribution | £1,620.00 |
| Total into pension | £7,620.00 |
| Fall in take-home pay | £3,480.00 |
| Income Tax saved | £2,400.00 |
| National Insurance saved | £120.00 |
Key assumptions
- The employer contribution is applied as a percentage of the reduced salary, which is the common scheme design. Some schemes base it on pre-sacrifice pay instead.
- Employer National Insurance savings are not modelled; if your employer shares them, enter that as part of the employer contribution.
Limitations
- Sacrifice cannot lawfully reduce pay below the National Minimum Wage, and the calculator does not enforce that limit.
- Reducing contractual pay can affect mortgage affordability assessments, statutory maternity and paternity pay, life cover and other salary-linked benefits.
- The £60,000 annual allowance caps tax-relieved pension input; exceeding it creates a charge this calculator does not model.
- A sacrifice is a contractual variation, so it is not something you can simply switch on and off at will.
Common questions
Why did I save only 2% National Insurance rather than 8%?
Is salary sacrifice better than a normal pension contribution?
Can I stop or change a salary sacrifice arrangement?
Does sacrifice help with the 60% band or the Child Benefit charge?
Related calculators
- Take-Home Pay Calculator — Compare the same contribution under a net pay or relief at source arrangement.
- High Income Child Benefit Charge Calculator — Sacrifice reduces adjusted net income, which is exactly what the Child Benefit charge is assessed on.
- UK Income Tax Calculator — See which band the sacrificed slice of salary was sitting in.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- Salary sacrifice for employers — GOV.UKEffect of a salary sacrifice on PAYE, National Insurance and contractual pay
- National Insurance rates and categories — GOV.UK (2026 to 2027)Category A employee Class 1: nothing to £242 a week, 8% to £967 a week, 2% above
- Tax on your private pension contributions: annual allowance — GOV.UK£60,000 annual allowance on tax-relieved pension input