Salary Sacrifice Pension 2026/27
Salary sacrifice pension 2026/27: Income Tax and NI saved at five salaries, the 15% employer NI rate, the minimum wage floor and the April 2029 NI cap.
What changed with the April 2025 employer NI rise
| Component | 2024/25 | 2026/27 | Effect on sacrifice |
|---|---|---|---|
| Employer NI rate | 13.8% | 15% | +1.2p more employer NI saved per pound sacrificed |
| Secondary Threshold | £9,100 | £5,000 | Matters only where pay after sacrifice is between the two |
| Employee NI rate (main / above UEL) | 8% / 2% | 8% / 2% | Unchanged |
| Employee + employer NI saved, main band | 21.8% | 23% | Plus Income Tax at your marginal rate |
| Employee + employer NI saved, above UEL | 15.8% | 17% | Plus Income Tax at your marginal rate |
From April 2029 only the first £2,000 a year of salary-sacrificed pension contributions will be free of employee and employer NI; Income Tax relief is unaffected (HMRC policy paper).
5 worked salary-sacrifice scenarios
England, Wales and Northern Ireland rates, 2026/27, worked by our salary engine. Each row assumes the employer passes 100% of its NI saving into your pension; many employers keep some or all of it, so ask payroll.
| Salary band | Salary | Sacrifice | IT saved | EE NI saved | ER NI top-up | Pension in | Net cost | Boost rate |
|---|---|---|---|---|---|---|---|---|
| Basic-rate | £30,000 | £3,000 | £600 | £240 | £450 | £3,450 | £2,160 | +60% |
| Basic-rate (top) | £45,000 | £5,000 | £1,000 | £400 | £750 | £5,750 | £3,600 | +60% |
| Higher-rate | £65,000 | £8,000 | £3,200 | £160 | £1,200 | £9,200 | £4,640 | +98% |
| Allowance taper zone | £110,000 | £10,000 | £6,000 | £200 | £1,500 | £11,500 | £3,800 | +203% |
| Additional-rate | £150,000 | £15,000 | £6,750 | £300 | £2,250 | £17,250 | £7,950 | +117% |
"Boost rate" = (pension contribution - your take-home cost) / your take-home cost. A 100% boost means £1 of take-home cost buys £2 in the pension. In these five cases it runs from 60% to 203%, highest in the allowance taper zone (£100,000 to £125,140).
NMW floor - the hard constraint
A salary sacrifice arrangement must not reduce your cash earnings below the National Minimum Wage rates, and employers must cap the deduction to keep to them (HMRC guidance). Rates from 1 April 2026, annualised at 37.5 hours a week for 52 weeks:
| Band | Hourly rate | 37.5-hour week annual | Headroom from £30k |
|---|---|---|---|
| National Living Wage (21 and over) | £12.71 | £24,785 | £5,215 |
| 18 to 20 | £10.85 | £21,158 | £8,843 |
| Under 18 | £8.00 | £15,600 | £14,400 |
| Apprentice | £8.00 | £15,600 | £14,400 |
The minimum wage is an hourly rate, so headroom depends on your hours. The apprentice rate applies to apprentices under 19 or in the first year of their apprenticeship; check the GOV.UK rates page for your own case.
OpRA - what salary sacrifice still works
Since April 2017 a benefit received in exchange for salary under a new arrangement is taxed on the higher of the salary given up and its normal benefit-in-kind value (ITEPA 2003 ss.69A and 69B). HMRC lists these as outside that rule:
- Pension contributions to a registered pension scheme, and employer-provided pensions advice.
- Bicycles and cycling safety equipment, including cycle to work schemes.
- Workplace nurseries (ITEPA 2003 s.318), and childcare vouchers or directly contracted childcare that started on or before 4 October 2018.
- Cars with CO2 emissions of no more than 75g/km are always valued under the normal company car rules; a zero-emission car is taxed at 4% of list price in 2026/27.
For other benefits, the higher-of rule means a new sacrifice usually saves little or no tax.
Related tools and guides
- Salary sacrifice calculator - interactive sacrifice + take-home tool.
- Salary sacrifice vs relief at source - when the sacrifice route loses to relief at source or net pay.
- Max pension contribution calculator - AA, MPAA, tapered AA, carry-forward mechanics.
- EV salary sacrifice - electric-car sacrifice and company car tax rates.
- £100k tax trap - the allowance taper zone where sacrifice saves the most.
- Optimum director salary 2026/27 - employer NI impact on owner-managed companies.
- Pension tax relief guide - Annual Allowance, MPAA, taper, carry forward.
- Director pension strategies - employer contributions and carry forward.
Frequently asked questions
How much can I save with salary sacrifice in 2026/27?
It depends on your marginal rates. In England, Wales and Northern Ireland a basic-rate taxpayer saves 28% (20% Income Tax + 8% NI), a higher-rate taxpayer above the Upper Earnings Limit 42% and an additional-rate taxpayer 47%. On £30,000 sacrificing £3,000: £600 Income Tax and £240 NI saved, so the take-home cost is £2,160. On £65,000 sacrificing £8,000: take-home cost £4,640. Your employer also saves 15% NI on the sacrifice and may pass some or all of it on.
What changed with salary sacrifice after April 2025?
From 6 April 2025 the employer (secondary) NI rate rose from 13.8% to 15% and the Secondary Threshold fell from £9,100 to £5,000, under the National Insurance Contributions (Secondary Class 1 Contributions) Act 2025. Each £1 of salary sacrificed above the threshold now saves the employer 15p of NI instead of 13.8p. The lower threshold only changes the saving where pay after sacrifice falls between the two thresholds. Employee NI (8% / 2%) is unchanged.
Will the NI saving on pension salary sacrifice be capped?
Yes. From April 2029 only the first £2,000 a year of employee pension contributions made through salary sacrifice will be exempt from NI. Employee and employer NI will be due on the amount above £2,000. Income Tax relief is unaffected, and employer pension contributions outside salary sacrifice stay free of NI. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 provides for the change.
What is the National Minimum Wage floor for salary sacrifice?
HMRC guidance says a salary sacrifice arrangement must not reduce an employee's cash earnings below the National Minimum Wage rates, and employers must cap the deduction to keep to them. From 1 April 2026 the National Living Wage (21 and over) is £12.71 an hour, the 18 to 20 rate £10.85, and the under-18 and apprentice rates £8.00. At 37.5 hours a week for 52 weeks the National Living Wage is £24,785 a year, so a 21-year-old on £30,000 working those hours has about £5,215 of headroom.
What is the Optional Remuneration Arrangements (OpRA) rule?
Since April 2017 (ITEPA 2003 ss.69A and 69B, inserted by Finance Act 2017 Schedule 2), a benefit received in exchange for salary is taxed on the higher of the salary given up and the normal benefit-in-kind value. HMRC lists the benefits outside this rule: pension contributions, employer-provided pensions advice, workplace nurseries, bicycles and cycling safety equipment, and childcare vouchers or directly contracted childcare that started on or before 4 October 2018. Cars with CO2 emissions of no more than 75g/km are always valued under the normal company car rules; a zero-emission car is taxed at 4% of list price in 2026/27.
How does salary sacrifice affect my Annual Allowance?
A pension contribution made by salary sacrifice is paid by your employer, and it counts towards the £60,000 Annual Allowance (Finance Act 2004 s.228) like any other contribution. If you have flexibly accessed a defined contribution pension, the Money Purchase Annual Allowance of £10,000 applies to money purchase contributions. The allowance is tapered if threshold income is over £200,000 and adjusted income is over £260,000: £1 less for every £2 above, to a minimum of £10,000. Salary given up under a pension salary sacrifice arrangement made after 8 July 2015 is added back when working out threshold income, so sacrifice does not get you under the £200,000 test.
How is a salary sacrifice pension set up?
Your employer has to offer it, and the arrangement is made by changing your employment contract with your agreement. HMRC expects to see the contract variation and payslips from before and after it, and the change cannot be backdated. If you can swap between cash and the benefit whenever you like, the tax and NI advantages do not apply; schemes can allow changes for lifestyle events such as marriage, divorce or a partner becoming redundant or pregnant. If your employer does not offer it, you can still get Income Tax relief through relief at source or a net pay arrangement.
Does salary sacrifice reduce my State Pension entitlement?
It can if it takes your earnings below the Lower Earnings Limit (£6,708 a year for 2026/27): you would not build a qualifying year from that job, and your employer would not have to pay statutory payments such as Statutory Maternity Pay. You usually need 35 qualifying years for the full new State Pension. Above the Lower Earnings Limit a lower cash salary can still reduce earnings-related payments such as Statutory Maternity Pay and Maternity Allowance.
Salary sacrifice vs employer NI top-up - what is "passed through"?
When you sacrifice salary, your employer saves 15% NI on it. Some employers add part or all of that to your pension; others keep it. There is no legal requirement to pass it on, so ask your payroll or HR team. In the £30,000 example, passing on the full saving would add £450 a year to a £3,000 sacrifice.
What about the bonus sacrifice route?
You can sacrifice a bonus into your pension as well as regular salary. HMRC's manual describes salary sacrifice as giving up a right to future cash remuneration, so the sacrifice has to be agreed before you become entitled to the bonus. On a £70,000 salary a £20,000 cash bonus leaves £11,600 after Income Tax and NI; sacrificed, the full £20,000 goes into the pension with no Income Tax or NI, and your employer saves £3,000 of NI. The Annual Allowance still applies, and from April 2029 bonus sacrifice counts towards the £2,000 NI-free limit.
Can company directors use salary sacrifice?
Yes, on the same rules as other employees. Many director-shareholders instead have the company pay employer contributions directly: these are not taxed as the director's earnings, carry no NI, and HMRC's Business Income Manual (BIM46001 onwards) sets out when they are deductible for the company. They count towards the £60,000 Annual Allowance, and unused allowance from the previous 3 tax years can be carried forward. A salary sacrifice that takes a director below the Lower Earnings Limit (£6,708) would lose that year's NI record.
What is the £100k personal-allowance taper effect?
Above £100,000 of adjusted net income the Personal Allowance falls by £1 for every £2, reaching nil at £125,140. With 40% tax that is a 60% marginal Income Tax rate, plus 2% NI. On £110,000 sacrificing £10,000 saves £6,000 Income Tax and £200 NI, so £10,000 goes into the pension for a take-home cost of £3,800. Your employer saves a further £1,500 of NI, which it may or may not add to your pension.
Are there any downsides to salary sacrifice pension?
Pension money is locked away until the normal minimum pension age, which is 55 and rises to 57 on 6 April 2028. A lower cash salary can reduce statutory payments such as Statutory Maternity Pay, and your employer decides whether pay rises and other pay-linked benefits use the old or reduced salary. Mortgage lenders differ on which salary they use. From 6 April 2027 most unused pension funds and death benefits will count towards your estate for Inheritance Tax. An ISA gives no up-front tax relief but the money stays accessible.