Salary Sacrifice Calculator
Calculate the impact of making salary sacrifice contributions.
What this calculator does
This calculator projects what salary sacrifice contributions build by retirement. Enter your age, retirement age, salary, the percentage you sacrifice, any employer contribution and your current pot, and it projects the balance forward with a year-by-year table separating contributions from investment growth.
What makes salary sacrifice distinctive is not the projection but the cost. Because the sacrificed amount never becomes your pay, it escapes both income tax and employee National Insurance, so a pound in the pension costs a basic rate taxpayer 72 pence of take-home and a higher rate taxpayer 58 pence.
When to use it
The obvious moment is when your employer offers the arrangement, or at a pay review when you can direct part of a rise into the pension before it ever reaches your bank account. Because sacrifice is set as a percentage, it scales with salary automatically, which a fixed monthly contribution does not.
It is also the sharpest tool for anyone earning between £100,000 and £125,140, where the tapering personal allowance produces a 60 percent effective rate, and for parents near the £100,000 threshold for tax-free childcare. Sacrificing back below that line can be worth far more than the headline tax relief alone.
Understanding the inputs
Enter salary as your gross pre-sacrifice figure, since the sacrifice percentage applies to it. Set the contribution percentage to the amount you intend to give up, and use the employer contribution field for their own contribution plus any National Insurance saving they pass on, which is often 15 percent of what you sacrifice.
Expected return should be net of platform and fund charges, so a global equity fund returning 7 percent gross might reasonably be entered as 6.3 percent. Watch the £60,000 annual allowance, which counts employer contributions too, and the £10,000 money purchase annual allowance if you have already flexibly accessed a pension.
How is this calculated?
FV = PV(1+r)^n + PMT×[(1+r)^n − 1]/r. Compares gross contribution impact vs take-home reduction.
A worked example
A 40-year-old earning £60,000 sacrifices 10 percent, or £6,000 a year. Since that sits above the £50,270 higher rate threshold, they save 40 percent income tax and 2 percent National Insurance, so take-home pay falls by about £3,480 rather than £6,000. The pension receives the full £6,000.
Invested at 6 percent to age 67, that £500 a month grows to roughly £403,000. If the employer passes on their 15 percent National Insurance saving, the contribution becomes £6,900 a year, or £575 a month, which reaches about £464,000 instead. An extra £61,000 for no additional cost to the employee.
Limitations and assumptions
This is a projection under fixed assumptions rather than a prediction. It applies one flat return and a constant salary across the whole period, and sequence-of-returns risk means the pot you actually reach could differ considerably even if the long-run average proves correct.
It also does not calculate your tax and National Insurance saving, enforce the annual allowance or its taper, model the reduction in salary-linked benefits such as mortgage capacity and statutory maternity pay, or account for income tax on withdrawals beyond the 25 percent tax-free element. Confirm the terms of your employer's scheme before committing.
Common Questions
- What is salary sacrifice?
- A formal agreement to reduce your contractual salary in exchange for an employer pension contribution of the same amount. Because the money never counts as your pay, it escapes income tax and National Insurance, unlike a personal contribution which only recovers income tax relief. The pension receives the full gross amount either way.
- How much does it actually save?
- For a basic rate taxpayer, sacrificing £100 costs about £72 of take-home pay, since you save 20 percent income tax and 8 percent employee National Insurance. For a higher rate taxpayer above £50,270 it costs about £58, saving 40 percent tax and 2 percent NI. The pension still receives the full £100.
- Will my employer pass on their NI saving?
- Many do, and it is worth asking. Employer National Insurance is 15 percent from April 2025, so on £6,000 sacrificed the employer saves £900. Some schemes add all or part of that to your pension automatically, which increases the contribution by a meaningful margin at no cost to you.
- Is it better than a normal pension contribution?
- Yes, for almost everyone. A personal contribution gets basic rate relief at source and higher rate relief through self assessment, but never recovers the National Insurance. Salary sacrifice captures the NI as well, and does so automatically without needing to claim anything back.
- Does it help around the £100,000 threshold?
- Dramatically. Between £100,000 and £125,140 the personal allowance tapers away, creating an effective marginal rate of 60 percent. Sacrificing income back below £100,000 also protects eligibility for tax-free childcare and the 30 free hours, which for a family with young children can be worth thousands on top.
- What are the downsides?
- Your contractual salary is genuinely lower, which can reduce mortgage borrowing capacity, statutory maternity and paternity pay, redundancy calculations and any life cover expressed as a multiple of salary. Sacrifice cannot take you below the National Minimum Wage, and some employers restrict how often you can change the arrangement.
- Does it reduce my State Pension?
- Only if the reduced salary drops below the lower earnings limit, which is unlikely for most employees. Qualifying years are earned by paying or being credited with National Insurance above that threshold, not by the amount paid, so a moderate sacrifice from a normal salary does not affect your record.
- What limits apply?
- The annual allowance is £60,000 across all pensions, including employer contributions, with unused allowance from the previous three tax years sometimes available to carry forward. High earners can see the allowance tapered to as little as £10,000, and once you flexibly access a pension the money purchase annual allowance caps you at £10,000.
- Can it be used for anything other than pensions?
- Yes. Salary sacrifice arrangements still work for ultra-low-emission company cars, cycle to work schemes, workplace nurseries and additional employer pension contributions. Most other benefits lost their tax advantage under the optional remuneration rules introduced in 2017, so pensions remain by far the largest use.
Related calculators
- Pension Projection CalculatorEstimate defined benefit pension payments in retirement.
- Income Tax CalculatorCalculate your UK income tax, National Insurance contributions, and take-home pay for the current tax year.
- Retirement Gap CalculatorIdentify the gap between your projected retirement savings and your income goal.