What is Salary Sacrifice for Pensions?

Salary sacrifice for pensions is a tax-efficient arrangement between an employer and employee. The employee agrees to reduce their gross salary, and in return, the employer agrees to pay the equivalent amount into the employee’s pension scheme. This arrangement can result in tax savings for both the employee and employer, as the sacrificed portion of the salary is not subject to income tax or National Insurance contributions.

How to Use the Salary Sacrifice Pension Calculator

Step 1: Enter Your Annual Salary

Input your current gross annual salary before any deductions. This is the starting point for the calculation and will help determine your potential savings.

Step 2: Specify Your Current Pension Contribution

Enter the percentage of your salary that you’re currently contributing to your pension. This helps establish a baseline for comparison.

Step 3: Input the Salary Sacrifice Amount

Decide how much of your salary you want to sacrifice for your pension contribution. This can be a fixed amount in pounds or a percentage of your salary.

Step 4: Add Your Employer’s Contribution

Enter the percentage your employer contributes to your pension. Some employers may increase their contributions when you opt for salary sacrifice, so check with your HR department.

Step 5: Provide Your Income Tax Rate

Input your current income tax rate. This is typically 20% for basic rate taxpayers or 40% for higher rate taxpayers in the UK.

Step 6: Enter Your National Insurance Rate

Specify your National Insurance contribution rate. This is usually 12% for most employees, but it can vary based on your income level.

Step 7: Calculate and Review Results

Click the “Calculate” button to see your results. The calculator will show your new take-home pay, total pension contribution, tax savings, and National Insurance savings.

Step 8: Analyze the Outcome

Review the results to understand how salary sacrifice affects your take-home pay and pension contributions. Consider the tax and National Insurance savings, as well as the increased pension contribution.

Step 9: Consult with a Financial Advisor

While this calculator provides a good estimate, it’s always wise to consult with a financial advisor or your company’s HR department before making any significant changes to your salary and pension arrangements.