Salary sacrifice is a contractual agreement to reduce your gross pay in exchange for a non-cash benefit, most commonly extra pension contributions, but also electric cars and cycle-to-work schemes. Because the sacrificed pay never exists, you pay no income tax or NI on it and your employer saves 15% employer NI, which good employers share back.
For pensions it is the most efficient contribution method available, and around the £60,000 to £80,000 and £100,000 to £125,140 income traps it can restore Child Benefit or the Personal Allowance at the same time. The trade-off: lower headline salary can affect mortgage multiples and some statutory pay. Model it with the Salary Sacrifice Calculator.
Sacrificing £200 a month into your pension at basic rate saves £40 income tax and £16 NI each month, so £2,400 a year of pension contributions reduces take-home pay by only £1,728. Your employer also saves £30 a month in NI, which generous schemes add to the pension too, pushing the effective boost higher still.
