Tax and your money

Pensions and salary sacrifice

Money paid into a pension comes out of your income before tax. Paid through salary sacrifice, it can skip National Insurance too, which makes it the cheapest way most employees can save.

Figures checked 15 Oct 2026 for the 2026/27 tax year (6 April 2026 to 5 April 2027), for England, Wales and Northern Ireland; Scotland has its own income tax bands. Tax rules change, usually at each Budget. Next review: after the next Budget, and by 6 April 2027.

Try it with your own pay: the take-home pay calculator compares salary sacrifice, a workplace pension and a SIPP.

Tax relief on the way in

• Into a personal pension or SIPP you pay from your take-home pay and the provider claims basic-rate relief: you pay £80, £100 goes in. Higher and additional-rate taxpayers claim the rest through a tax return.
• Through a workplace scheme contributions are often taken before tax, so the relief is automatic.
• Most people can pay in up to £60,000 a year, and no more than they earn. Unused allowance from the last three tax years can usually be carried forward.

Salary sacrifice: tax and National Insurance

With salary sacrifice you agree a lower salary and your employer pays the difference into your pension. Because it’s no longer salary, there’s no income tax and no National Insurance on it, for you or your employer. Some employers add their own saving (15% employer National Insurance) to your pension.

Employee National Insurance is 8% on earnings up to £50,270 a year and 2% above. Paying the same £2,000 into a personal pension from take-home pay costs a basic-rate taxpayer £1,600 and a higher-rate taxpayer £1,200 after claiming, so salary sacrifice saves the National Insurance on top.

What’s changing in 2029

The November 2025 Budget announced that from April 2029 only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Income tax relief is unchanged. Until then the full amount qualifies.

Things to check first

• Salary sacrifice can’t take your pay below the National Minimum Wage, and a lower salary can affect things based on it: some mortgage applications, life cover or maternity pay.
• If your employer matches contributions, pay in at least enough to get the whole match.
• Pension money is locked away until 55, rising to 57 from 6 April 2028. ISAs and pensions covers when each makes sense.

Sources: GOV.UK: pension tax relief; changes to salary sacrifice from April 2029.

General information, not tax or financial advice: how the rules apply depends on your circumstances. For free, impartial guidance try MoneyHelper; for complicated cases, a regulated financial adviser or a chartered tax adviser. All tax pages.