UK Bonus Sacrifice into Pension Calculator 2026/27

What bonus sacrifice into pension actually does

A bonus paid through PAYE is taxed at your marginal rate of Income Tax, plus employee National Insurance at 8% up to the Upper Earnings Limit or 2% above it. Your employer also pays Class 1 secondary NI of 15% on earnings above the secondary threshold (£5,000 a year in 2026/27). That employer cost never shows on your payslip.

Bonus sacrifice replaces that flow. You agree with your employer, in writing and before you become entitled to the bonus, that some or all of it will be paid as an employer pension contribution instead of as cash. If that is done in time (HMRC EIM42765), three things follow:

1. The sacrificed portion is not employment income, so no Income Tax is due on it when it goes in.
2. No employee NI is due on it.
3. Your employer does not pay the 15% employer NI on it either.

What lands in your pension is the sacrificed amount. If your employer chooses to pass on the employer NI it saves, the contribution becomes 115% of the amount sacrificed: a £10,000 sacrifice becomes £11,500 in the pension.

Why it is often aimed at bonuses

The arithmetic is the same as ongoing salary sacrifice. Bonuses get singled out because a one-off payment can push income into a band with a higher marginal rate for that year: the £100,000-£125,140 Personal Allowance taper, the additional rate above £125,140, or, for parents, the High Income Child Benefit Charge between £60,000 and £80,000.

A worker on £100,000 base salary who receives a £10,000 bonus (England, 2026/27):

• Cash route: the whole bonus falls in the taper band. It is taxed at 40% plus 2% NI, and it also removes £5,000 of Personal Allowance, which is then taxed at 40%. Net cash: £3,800.
• Sacrifice route: £10,000 goes into the pension, or £11,500 if the employer passes on its NI saving.

That is about 3 times the cash figure going in. The comparison is not like for like: the cash is spendable now, while pension money is locked away and taxed as income when drawn, apart from the tax-free lump sum (usually 25%).

Worked example: £130k base + £20k bonus

Base salary £130,000 is above £125,140, so the Personal Allowance is already gone and the whole £20,000 bonus is taxed at the additional rate.

• Cash bonus through PAYE: 45% Income Tax + 2% NI. Net cash kept: £10,600. The employer also pays £3,000 of employer NI (15% of £20,000), so the bonus costs it £23,000.
• Sacrifice 100%, employer keeps its NI saving: £20,000 goes into the pension instead of £10,600 of cash.
• Sacrifice 100%, employer passes on its NI saving: £23,000 goes into the pension. The employer’s cost is the same £23,000 as the cash route.

When sacrifice beats cash, and when it doesn’t

On tax going in, sacrifice wins for most higher-rate taxpayers. It loses on:

• Liquidity: pension money cannot normally be taken before the normal minimum pension age: 55 now, rising to 57 from 6 April 2028 (Finance Act 2022 s.10). If you need the cash for a house deposit, debt repayment or an emergency fund, take it as cash.
• Annual allowance: £60,000 in 2026/27 for most people, covering your own and your employer’s contributions, with unused allowance from the previous 3 years available to carry forward. Above it an annual allowance charge claws back the relief. The allowance is tapered if threshold income is over £200,000 and adjusted income is over £260,000, down to £10,000 (GOV.UK).
• Lump sum allowance: tax-free lump sums are capped at £268,275 in total for most people (the cap that replaced the Lifetime Allowance from 6 April 2024; GOV.UK). Once it is used up, further lump sums are taxed as income.
• Inheritance Tax from 6 April 2027: most unused pension funds and death benefits will count towards the estate for Inheritance Tax (HMRC policy paper), which reduces the appeal of building a large pot to pass on.
• From 6 April 2029: pension contributions made through salary sacrifice above £2,000 a year will attract Class 1 NI, employee and employer; the Income Tax treatment is unchanged (HMRC policy paper).

How to set up bonus sacrifice

HMRC’s test is timing: the right to the cash must be given up before it is treated as received for tax purposes, and the employment contract should be varied well in advance of the date the payment is due (EIM42765). In practice:

1. Find out whether your employer offers bonus sacrifice and its deadline for elections.
2. Make the election before you are entitled to the bonus.
3. Payroll pays the sacrificed amount to your pension as an employer contribution and runs any cash portion through PAYE as normal.

If the sacrifice is not in place in time, the whole bonus is taxable as earnings. Paying some of it into a pension afterwards is then a personal contribution: it gets Income Tax relief but not the NI saving (EIM42775).

Interaction with other thresholds and benefits

Bonus sacrifice lowers your adjusted net income, which can:

• Restore Personal Allowance: each £1 sacrificed between £100,000 and £125,140 also restores 50p of allowance, which is why the saving there is 62% rather than 42%.
• Reduce or remove the High Income Child Benefit Charge: it is 1% of the Child Benefit for every £200 of adjusted net income above £60,000, and the full amount at £80,000 or more.
• Keep Tax-Free Childcare: you cannot get it if you or your partner expect adjusted net income over £100,000 (GOV.UK).
• Reduce student loan repayments: repayments are a percentage of pay above the plan threshold, so lower pay means lower repayments.

These knock-on effects can make sacrifice worth more at lower incomes than the marginal-rate figures alone suggest - for example for parents between £60,000 and £80,000.

What the calculator doesn’t model

This calculator compares cash take-home, the pension contribution, any employer NI passed on, and the difference from taking it all as cash. It counts the pension contribution at face value: it does not deduct the tax you may pay when you draw it. It also assumes:

• Your sacrifice is set up in time (not retroactive).
• You have annual allowance headroom (it does not apply the £60,000 cap or taper).
• Your cash pay stays above the National Minimum Wage.
• No salary-linked benefits (mortgage affordability, statutory pay, life cover) are affected. Check with your employer and any lender.

For pension annual allowance modelling, use the Pension Annual Allowance Calculator. For the underlying salary mechanics, see the Salary Sacrifice Calculator. For an overview of bonus taxation in cash form, see the Bonus Tax Calculator.

Related guides

• Salary Sacrifice Explained - the wider mechanics and watch-outs.
• Pension Auto-Enrolment - the contribution floor most schemes build on.
• The 60% Tax Trap - why income between £100k and £125,140 attracts an effective 62% marginal rate.