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Salary sacrifice and National Insurance: the saving most calculators miss
A relief-at-source pension contribution saves income tax but not National Insurance. Salary sacrifice saves both — and the employer’s NI saving can land in your pension on top.
Based on SSCBA 1992 (National Insurance) and the NICs (Secondary Class 1 Contributions) Act 2025.
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Most pension calculators model income tax relief and stop there. For a personal, relief-at-source contribution that is right: you pay it from taxed income, the provider reclaims basic-rate relief, and higher-rate relief comes through self-assessment — but National Insurance has already been charged on the pay, and none of it comes back.
Salary sacrifice works differently. The pay is never received, so it never enters the National Insurance computation. That saves employee NI on top of the income tax, and it saves the employer’s NI too.
The employee saving
Employee Class 1 NI for 2025-26 is 8% on earnings between the primary threshold (£12,570) and the upper earnings limit (£50,270), then 2% above. The NI saved on a sacrifice turns on where the salary sits. A basic- or higher-rate earner below the UEL saves 8% on the sacrificed band; an additional-rate earner already above the UEL saves only 2%. So a £1,000 sacrifice saves £80 of NI for someone earning £40,000, but only £20 for someone earning £120,000.
The employer saving
The employer pays secondary (employer) Class 1 NI at 15% on earnings above the £5,000 secondary threshold from 6 April 2025 — up from 13.8% above £9,100 the year before. A lower salary means a lower employer NI bill, and a well-designed scheme adds that 15% to the pension contribution. On a £1,000 sacrifice that is another £150 into the pension at no cost to you.
- Income tax saved (40%)
- £400.00
- Employee NI saved (2%)
- £20.00
- Fall in take-home
- £580.00
- Employer NI saving added (15%)
- £150.00
- Total into the pension
- £1,150.00
SSCBA 1992 s.8 (primary) and s.9 (secondary) ; gov.uk/national-insurance-rates-letters.
The salary sacrifice calculator models the employee saving across the UEL crossover and lets you set how much of the employer NI is passed on. From April 2029 a cap on this NI relief is planned — see the 2025 Budget change.
Common questions
- Does salary sacrifice save National Insurance?
- Yes. The sacrificed salary is never paid, so no employee National Insurance is charged on it — 8% between £12,570 and £50,270, or 2% above £50,270 for 2025-26. The employer also saves 15% secondary NI, which it may add to your pension.
- Why does a personal pension contribution not save National Insurance?
- A relief-at-source or net-pay personal contribution comes out of pay that has already had National Insurance charged on it. Only salary sacrifice removes the pay before NI applies, so only salary sacrifice saves it.
- How much employer National Insurance does salary sacrifice save?
- The employer saves secondary Class 1 NI at 15% on the sacrificed amount above the £5,000 secondary threshold (from 6 April 2025). On a £1,000 sacrifice that is £150 — which a generous scheme adds to your pension.
Sources & grounding
- Employee Class 1 primary NI: SSCBA 1992 s.8; gov.uk/national-insurance-rates-letters — 8% (PT £12,570 → UEL £50,270) / 2% above, 2025-26 (unchanged for 2026-27).
- Employer Class 1 secondary NI: SSCBA 1992 s.9; NICs (Secondary Class 1 Contributions) Act 2025 — 15% above £5,000 from 6 April 2025; 13.8% above £9,100 in 2024-25. Unchanged for 2026-27 per gov.uk Rates and thresholds for employers 2026 to 2027.
- Relief-at-source pensions save income tax but not NI: FA 2004 s.192 (relief given on the contribution, not the NICable pay).
For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.