Salary Sacrifice vs Net Pay Pension: Which Saves More?
How salary sacrifice and net pay pension schemes affect your Income Tax, National Insurance and take-home pay.
Most workplace pensions take your contribution before tax. How they do it changes how much you save.
Salary sacrifice
You agree to a lower salary and your employer pays the difference into your pension. Because your pay is lower, you save Income Tax, National Insurance and student loan repayments.
Net pay arrangement
Your contribution is deducted before Income Tax, but National Insurance is still worked out on your full salary.
Example: 5% of £40,000
| Scheme | Into pension | Yearly take-home |
|---|---|---|
| No pension | £0 | £32,319.60 |
| Salary sacrifice | £2,000 | £30,879.60 |
| Net pay | £2,000 | £30,719.60 |
Salary sacrifice leaves you £160.00 a year better off here, because of the National Insurance saving.