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Saving into a pension

Salary sacrifice

Salary sacrifice is an especially tax-efficient way for you to make pension contributions. See how you may be able to benefit. 

A way to save and reduce your income tax and National Insurance

Your employer may offer you the option of salary sacrifice as part of their pension scheme. If so, you can give up part of your salary (your sacrifice), which your employer then pays into your pension, along with their contribution to the scheme.

As you're effectively earning a lower salary, both you and your employer pay lower National Insurance Contributions (NICs). Better still, your employer may pay part or all of their NIC saving to your pension too (although they don't have to do this).

There are some disadvantages though, which we explain below. So if your employer offers a salary sacrifice arrangement, you should investigate whether you should take up this offer.

Your employer should give you an overview of how salary sacrifice might affect you and whether or not they would pay some or all of the NICs they save into your pension pot. You can also ask your employer to carry out a calculation to show how salary sacrifice would affect your take home pay. You don't have to go ahead with salary sacrifice if you don’t think you’ll benefit enough.

Is it right for you?

The key advantage of salary sacrifice can be greater take home pay, as you will be paying lower National Insurance Contributions. You may also benefit from more pension contributions from your employer, if they are giving you some or all the money they are saving on NICs.

But you need to weigh up four disadvantages against this too.

  • If your employer is providing you with life cover, this is usually worked out as a multiple of your salary. Your employer may provide less life cover if you sacrifice some of your salary.  
  • You won't be able to receive a refund of your contributions if you leave your employment within two years of being in the scheme (a benefit many workplace schemes offer). This is because you are not directly paying contributions, so there are no contributions to be refunded.
  • Your lower salary may affect the amount of money you are able to borrow for a mortgage. Mortgage lenders usually calculate how much you can borrow as a multiple of your salary, although your employer may agree to state your original salary when they supply a mortgage reference.
  • Your entitlement to certain State benefits, such as Statutory Maternity Pay (SMP) and the State second pension (S2P) may be affected if your salary falls below the level at which you pay NICs. Your employer should be able to tell you whether or not you will be affected in this way.



Salary sacrifice is regulated by HM Revenue and Customs. You can find more information and guides here.


Frequently asked...

Can I use salary sacrifice if I earn a low salary?

It depends what your salary is. You can't use salary sacrifice if it would reduce your earnings below the minimum wage.

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.