Tax & take-home pay
Salary sacrifice vs net pay comparison
Salary sacrifice swaps part of your gross salary for an employer pension contribution of the same amount. Because you pay no Income Tax or National Insurance on the sacrificed portion, you usually end up with more take-home pay than under net-pay arrangements — for the same money going into your pension.
- Salary sacrifice take-home
- £39,905
- Net-pay take-home
- £39,817
- You're better off by
- +£88 / yr
| Contribution into pensionSame in both scenarios. | £4,400 |
|---|---|
| National Insurance — salary sacrificeCharged on the reduced salary. | £3,023 |
| National Insurance — net payCharged on the full salary. | £3,111 |
| NI saved by sacrificingThis is the salary-sacrifice advantage. | £88 |
| Annual saving from salary sacrifice | £88.00 |
Salary sacrifice reduces your gross salary in exchange for your employer paying the equivalent into your pension. You pay neither Income Tax nor National Insurance on the sacrificed amount — the advantage over a net-pay arrangement is the National Insurance saving. Check the impact on mortgage affordability, life cover and statutory pay before opting in.
How it works
- Under net pay, your contribution comes out of your gross salary before tax, so you get full Income Tax relief — but you still pay National Insurance on the full salary.
- Under salary sacrifice, your gross salary is reduced and your employer pays the equivalent into your pension. You pay neither Income Tax nor National Insurance on the sacrificed amount.
- The difference is the National Insurance saving — 8% in the basic band, 2% above the Upper Earnings Limit. On a £4,000 contribution at a £55,000 salary, that's around £320 a year extra in your pocket.
Common questions
- Will salary sacrifice affect my mortgage application?
- Some lenders use your reduced salary; others use your 'notional' salary and add back the sacrifice. Ask your lender or broker how they treat it before applying.
- Does salary sacrifice reduce my State Pension entitlement?
- Only if it takes you below the Lower Earnings Limit (£6,396 in 2026/27). Above that, you continue to qualify for National Insurance credits.
- Can I sacrifice down to the minimum wage?
- No. Salary sacrifice cannot take your remaining cash pay below the National Living Wage / National Minimum Wage for the hours you work — your employer's payroll will block it.