Salary sacrifice, also known as ‘salary exchange’, is an arrangement with your employer where you agree to reduce your salary by the amount you want to contribute to your pension. Your employer then pays this amount, plus their contribution, to your pension savings.
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There are two ways your employer could do this. Either they can add 0% as the employee contribution percentage, and show the total contribution percentage as the employer contribution, or they can provide the contribution percentages split between the employee and employer. In both cases, it’s all paid by your employer.

The main benefit is that you and your employer will pay less in National Insurance Contributions (NICs) and income tax. These savings will increase either your pension contribution or your take-home pay, depending on the basis of your employer’s scheme.

Also, as your salary is reduced, there is the possibility that you may be in a favourable position when it comes to child benefit.

Your reduced salary could affect the amount of money you are able to borrow from a mortgage provider. Your entitlement to state benefits, such as Statutory Maternity Pay, may also be affected.

Your employer should provide you with an overview of how salary sacrifice might affect you and whether they pay some or all NICS they save into your Smart Pension account.

Javid earns £30,000 a year, sacrifices 5% of his salary to his pension, which equates to £1,500 a year. His employer contributes 3% of his salary to his pension, which equates to £900 a year.

Javid’s employer sets up the salary sacrifice arrangement, where all of the National Insurance Contribution (NIC) savings are retained by Javid and the employer. These savings are not added to Javid’s pension.

In the two examples below, we compare the difference between Javid’s salary, pension contribution and tax position before and after using salary sacrifice.

*Assumptions - Tax allowance full personal UK (excl. Scotland & Wales) 2026/27 - £12,570, with 20% tax rate applied. Employee National Insurance Primary threshold £9,568, with 12% 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 [email protected]

Before salary sacrifice

After 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) 2026/27 - £12,570, with 20% tax rate applied. Employee National Insurance Primary threshold £9,568, with 12% 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 [email protected]

Before salary sacrifice

After salary sacrifice

Please note: these examples have 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.

You can view or change your contributions by signing into your Smart Pension account and selecting Contributions.

This will typically display your contribution as 0% if you haven't made any changes. This is because your employer pays your contribution on your behalf. Or it could be split by the percentages you both pay. In both cases, it's all paid by your employer.

You can also find out more about understanding what's been paid into your pension savings by reading our help article.

You can increase your contributions by using the pension calculator. Sign into your Smart Pension account and select the Pension calculator tile.

You can use the calculator to find out if you're predicted to have a minimum, moderate or comfortable lifestyle in retirement, based on the Retirement Living Standards.

You can then see how changing your Smart Pension contributions or retirement age could impact your lifestyle in retirement. If you're happy with the changes, you can make them there and then.

You can contact your employer directly to decrease your contributions that go into your Smart Pension account.

Your employer will then update their payroll records and your decrease will apply to your next payroll period. You will then receive a communication to confirm the new contribution total once your employer has made the change.

Please note that if you have been automatically enrolled you may only be able to reduce contributions to the legal minimum that must be paid.

Most lenders base the amount that they’re willing to lend on a combination of salary and affordability from your take-home pay. Most employers are happy to provide details of the salary sacrifice arrangement too. Check with your individual lender for their requirements.

Usually yes you can, but please check with your employer.

As the contribution is now being paid by salary sacrifice (your employer pays the contribution on your behalf) you effectively get tax relief immediately and do not have to claim it through a self assessment tax return.