Salary sacrifice and your pension

Salary sacrifice is a more tax-efficient way for you to make pension contributions. Find out how you might be able to benefit.

A way to save and reduce your Income Tax and National Insurance

Your employer might offer you the option of salary sacrifice as part of their pension scheme. This is a way to make your pension saving more tax-efficient and could mean your take home pay increases.

If you choose to take up the option, you and your employer will agree to reduce your salary, and your employer will then pay the difference 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), which often means your take home pay will be higher. Better still, your employer might pay part or all their NIC saving into your pension too (although they don’t have to do this).

Is it right for you?

The main advantage of salary sacrifice can be higher take home pay, as you’ll be paying lower National Insurance contributions (NICs).

Your employer will also pay lower NICs. You might benefit from more pension contributions from your employer, if they are giving you some or all the money they’re saving on NICs.

Disadvantages

There are possible disadvantages it’s important to consider:

  • If your employer is providing you with life cover, this is usually worked out as a multiple of your salary. Your employer might provide less life cover if you sacrifice some of your salary. Your employer should tell you if any workplace life cover is based on your pay before or after the salary sacrifice deduction.
  • If you’re in a defined benefit scheme and you leave it in the first two years, you might not be able to get a refund of your contributions. This is because any salary sacrifice contributions would count as employer contributions.
  • If you’re in a defined contribution scheme, you can only get a refund of your contributions if you opt out or leave the scheme within 30 days of joining it. As these contributions will be made by your employer, if you opt out or leave after 30 days – your pot will remain invested and you won’t be able to access the money until the age of 55 (57 from 2028).
  • Your lower salary might affect the amount of money you’re able to borrow for a mortgage. 
  • Your entitlement to certain State benefits, such as Statutory Maternity Pay, might be affected. 

So if your employer offers a salary sacrifice arrangement, find out whether it’s right for you.

Your employer should give you an overview of how salary sacrifice might affect you and whether they would pay some or all the NICs they save into your pension pot.

You can also ask your employer to calculate 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.

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.

Was this information useful?
Thank you for your feedback.
We’re always trying to improve our website and services, and your feedback helps us understand how we’re doing.
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Talk to us live for…
Talk to us live for…
Talk to us live for pensions guidance using…
Talk to us live for money guidance using…
0800 011 3797* Hours
  • Mon – Fri:9.00am – 5.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for money guidance using the telephone
0800 138 7777* Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for pensions guidance using web chat
Hours
  • Mon – Fri:9.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed
Talk to us live for money guidance using web chat
Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat:8.00am – 3.00pm
  • Sun and bank holidays:Closed
Talk to us for pensions guidance using our web form

We aim to respond within 5 working days

Talk to us for money guidance using our web form

We aim to respond within 2 working days

Talk to us live for money guidance using WhatsApp
+44 77 0134 2744

Download app: WhatsApp

For help sorting out your debts, credit questions or pensions guidance. For everything else please contact us via Webchat or Telephone.