Pension paid in a month£167
Cost via salary sacrifice£120
Cost taken before tax£133
2026/27 tax year (6 April 2026 to 5 April 2027). £40,000 salary, 5% pension, England.
What salary sacrifice is
You agree to give up part of your salary, and your employer pays that amount into your pension instead. Because your official salary is lower, you pay less Income Tax and less National Insurance. Your employer saves National Insurance too, and some pass that saving into your pension.
Three ways of paying into a workplace pension
| How it's paid | Saves Income Tax? | Saves National Insurance? | Example cost a month |
|---|---|---|---|
| Salary sacrifice | Yes | Yes | £120 |
| Taken before tax (net pay) | Yes | No | £133 |
| Taken after tax (relief at source) | Yes, basic rate added by provider | No | £133 |
£40,000 salary, 5% pension (£2,000 a year), England, 2026/27. Higher-rate taxpayers with relief-at-source pensions can claim extra relief through Self Assessment.
Things to watch
- Your salary can't be sacrificed below the National Living Wage.
- A lower official salary can reduce things linked to it, like some mortgage applications, life cover or statutory pay.
- From April 2029, the government plans to limit the National Insurance saving to the first £2,000 a year you sacrifice. Income Tax relief isn't affected.
Try it in the take-home pay calculator by choosing "Salary sacrifice" under pension.
Sources: GOV.UK rates and thresholds 2026 to 2027, AJ Bell.