Salary Sacrifice Pension Guide: How to Cut Tax & NI Deductions

Salary sacrifice (smart pension) is an arrangement where you agree to reduce your gross contractual pay by a set amount, and your employer pays that exact amount into your workplace pension.

Why is Salary Sacrifice Superior?

Under standard pension relief at source, you save Income Tax but still pay 8% National Insurance on your pension contributions. Under salary sacrifice:

• 0% Income Tax: The sacrificed amount never counts as taxable pay.
• 0% National Insurance: You save 8% (or 2%) NI on every pound contributed.
• Employer Savings: Employers save 13.8% Employer NI and often pass some of this saving back into your pension pot.