Can a salary sacrifice pension help with the National Insurance increases?

Smart Pension's Maureen Hudson, shares her view

We’ve all read about the increasing cost of living this year including the rising cost of National Insurance. But did you know that a company workplace pension may be able to significantly reduce the National Insurance a company and employees pay? 

What is salary sacrifice?

Salary sacrifice, also known as ‘salary exchange’, is an arrangement with you and your employees where you agree to exchange your employee’s salary by the amount they want to contribute to their pension. You will then pay this amount, plus your contribution, to their pension savings.

How can salary sacrifice benefit my company?

  • It is a tax efficient way for you to save money on your workplace pension scheme
  • Both you and your employees pay less National Insurance contributions each month
  • You can choose how to reinvest those savings - some employers choose to offer an increased pension contribution to your employees.
  • Allows you to offer increased benefits for your employees, at no extra cost to you

Examples of savings made by using salary sacrifice

Samantha earns £30,000 a year, sacrifices 5% of her salary to her pension, which equates to £1,500 a year. Her employer contributes 3% of his salary to her pension, which equates to £900 a year. Samantha’s employer sets up the salary sacrifice arrangement, where all of Samantha’s and her employer’s NI savings are saved into her pension. In the two examples below, we compare the difference between Samantha’s salary, pension contribution and tax position before and after using salary sacrifice.

*Assumptions - Tax allowance full personal UK (excl. Scotland & Wales) 2021/22 - £12,570, with 20% tax rate applied. Employee National Insurance Primary threshold £9,568, with 8% NI rate applied Employer National Insurance Secondary threshold £8,840, with 13.8% NI rate applied. To find out more about how we worked this calculation out, email ask@

salary sacrifice example

Please note: this example has been provided for illustration purposes only. The benefits of using salary sacrifice will vary depending on your salary, location, current tax rates and what options your employer offers. 

*This is 10.3% of the reduced salary but 9.7% of the original salary of £30,000.

Read some more working examples of what this means in terms of take-home pay and potential savings.

Interested in finding out more? 

Read more about why an employer should choose salary sacrifice

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About Smart Pension

Launched in 2015, Smart Pension exceeds £5bn in assets under management (AUM) and now serves over one million members and more than 70,000 employers. It is powered by Keystone, Smart’s global savings and investments technology platform.

Aquiline Capital Partners, Barclays, Chrysalis Investments, DWS Group, Fidelity International Strategic Ventures, J.P. Morgan, Legal & General Investment Management, Link Group and Natixis Investment Managers are all investors in Smart Pension.