What is bonus sacrifice into pension?

You agree with your employer to redirect some or all of an upcoming bonus straight into your pension as an employer contribution, before it is paid as cash. Because the bonus is never paid as employment income, it escapes Income Tax, employee National Insurance and (typically) employer National Insurance.

How much tax do I save by sacrificing my bonus?

You save your full marginal rate of Income Tax plus employee NI on the sacrificed amount. Basic rate: 28% (20% IT + 8% NI). Higher rate: 42% (40% + 2%). In the £100k to £125,140 Personal Allowance taper band: about 62% (40% + 2% + 20% from PA loss). Additional rate: 47% (45% + 2%). Scotland top rate: 50% (48% + 2%).

Will my employer pass back their NI saving?

Some employers do, most do not. From 6 April 2025 employer Class 1 secondary NIC rose to 15%, so a £10,000 sacrifice saves the employer £1,500. Generous schemes credit this back into the pension as an enhanced contribution, lifting the pot from £10,000 to £11,500. Ask your payroll or pensions team - if it is not in writing it almost certainly is not happening.

Is bonus sacrifice better than cash for everyone?

No. Cash bonus is immediately spendable. Sacrificed bonus is locked in pension until age 57 (rising to 58 in 2028). The sacrifice route is strongest for higher earners in the £100k-£125,140 trap where each cash pound costs 62p in tax, and for additional-rate taxpayers who already have adequate liquid savings. If you need the cash for a deposit, debt repayment, or emergency fund, take it as cash.

Does bonus sacrifice affect my pension annual allowance?

Yes - the sacrificed amount counts toward your £60,000 pension annual allowance for 2026/27. If you earn over £260,000 of threshold income the allowance tapers down (by £1 for every £2 above £260k adjusted income) to a minimum of £10,000. Use the pension annual allowance calculator to confirm headroom before sacrificing a large bonus.

When do I need to set up bonus sacrifice?

You must agree the sacrifice with your employer in writing BEFORE the bonus is paid. HMRC rules require a variation of the employment contract before any entitlement to the cash bonus arises - typically at least one full pay period before payment date. A retroactive sacrifice (after the cash has been paid) is not allowed and would be re-classified as a regular pension contribution with only Income Tax relief.

Can I sacrifice more than the bonus into pension?

You can salary-sacrifice ongoing base pay as well, but bonus sacrifice itself is capped at the bonus amount. The combined sacrifice cannot push your taxable pay below the National Minimum Wage. For very high sacrifices, also watch the £60,000 (tapered) annual allowance and the £268,275 lump sum allowance.

Bonus Sacrifice on a £350,000 Salary 2026/27

On a £350,000 UK base salary, sacrificing an upcoming bonus into pension instead of taking it as cash escapes Income Tax plus employee National Insurance at your marginal rate. Below shows the cash-vs-pension comparison for 5%, 10% and 20% bonuses at this salary level, assuming the employer also shares back their 15% Class 1 secondary NIC saving as enhanced pension.

5% bonus

£17,500

As cash: £9,275 net

Sacrificed: £20,125 into pension

+62% retained

10% bonus

£35,000

As cash: £18,550 net

Sacrificed: £40,250 into pension

+62% retained

20% bonus

£70,000

As cash: £37,100 net

Sacrificed: £80,500 into pension

+62% retained

Side-by-side comparison at £350,000

Bonus	Cash net	Sacrificed (100%)	Employer NIC shared	Advantage
£17,500	£9,275	£20,125	+£2,625	+£10,850
£35,000	£18,550	£40,250	+£5,250	+£21,700
£70,000	£37,100	£80,500	+£10,500	+£43,400

"Advantage" is the difference between total value to worker (cash net + pension gain) on the sacrifice route vs taking the bonus 100% as cash. Pension money is locked until age 57 (rising to 58 in 2028) - factor that into your decision.

Where the saving is biggest

At a £350,000 salary, a £17,500 bonus shows the largest sacrifice advantage of +£10,850 (62% of the headline bonus). This is the implicit marginal rate (Income Tax + employee NI + any PA-taper effect + shared employer NIC) you avoid by sacrificing.

Cite or embed - free under CC BY 4.0

Frequently asked questions

What is bonus sacrifice into pension?: You agree with your employer to redirect some or all of an upcoming bonus straight into your pension as an employer contribution, before it is paid as cash. Because the bonus is never paid as employment income, it escapes Income Tax, employee National Insurance and (typically) employer National Insurance.
How much tax do I save by sacrificing my bonus?: You save your full marginal rate of Income Tax plus employee NI on the sacrificed amount. Basic rate: 28% (20% IT + 8% NI). Higher rate: 42% (40% + 2%). In the £100k to £125,140 Personal Allowance taper band: about 62% (40% + 2% + 20% from PA loss). Additional rate: 47% (45% + 2%). Scotland top rate: 50% (48% + 2%).
Will my employer pass back their NI saving?: Some employers do, most do not. From 6 April 2025 employer Class 1 secondary NIC rose to 15%, so a £10,000 sacrifice saves the employer £1,500. Generous schemes credit this back into the pension as an enhanced contribution, lifting the pot from £10,000 to £11,500. Ask your payroll or pensions team - if it is not in writing it almost certainly is not happening.
Is bonus sacrifice better than cash for everyone?: No. Cash bonus is immediately spendable. Sacrificed bonus is locked in pension until age 57 (rising to 58 in 2028). The sacrifice route is strongest for higher earners in the £100k-£125,140 trap where each cash pound costs 62p in tax, and for additional-rate taxpayers who already have adequate liquid savings. If you need the cash for a deposit, debt repayment, or emergency fund, take it as cash.
Does bonus sacrifice affect my pension annual allowance?: Yes - the sacrificed amount counts toward your £60,000 pension annual allowance for 2026/27. If you earn over £260,000 of threshold income the allowance tapers down (by £1 for every £2 above £260k adjusted income) to a minimum of £10,000. Use the pension annual allowance calculator to confirm headroom before sacrificing a large bonus.
When do I need to set up bonus sacrifice?: You must agree the sacrifice with your employer in writing BEFORE the bonus is paid. HMRC rules require a variation of the employment contract before any entitlement to the cash bonus arises - typically at least one full pay period before payment date. A retroactive sacrifice (after the cash has been paid) is not allowed and would be re-classified as a regular pension contribution with only Income Tax relief.
Can I sacrifice more than the bonus into pension?: You can salary-sacrifice ongoing base pay as well, but bonus sacrifice itself is capped at the bonus amount. The combined sacrifice cannot push your taxable pay below the National Minimum Wage. For very high sacrifices, also watch the £60,000 (tapered) annual allowance and the £268,275 lump sum allowance.