1. The Basics: How It Works & Your Pay
What is Salary Sacrifice and how does it save me money?
Currently, you likely pay National Insurance (NI) on your pension contributions. Under Salary Sacrifice, you agree to "sacrifice" part of your gross salary in exchange for a pension contribution from your employer.
The Benefit: Because your official gross salary is lower, you pay less National Insurance.
The Savings: You will typically save 8% on your contribution amount if you earn under £50,270, or 2% if you earn over that threshold. This results in higher take-home pay.
Will my total pension contribution change?
No. The total amount landing in your pension pot remains the same.
If you are moving from "Relief at Source": Instead of contributing 80% from net pay and waiting for a 20% government top-up, you contribute 100% directly from your gross pay. It’s more efficient and your tax decreases instantly.
Employer Contributions: These remain the same unless your employer chooses to increase them.
What if I am a Higher Rate (40% or 45%) taxpayer?
If you were previously on "Relief at Source," you had to manually claim back the extra 20% or 25% tax relief from HMRC. With Salary Sacrifice, you receive the full tax break automatically through your payroll. There is no need to file a claim for those contributions.
2. Impact on Bonuses and Increases
How does this affect my bonus or commission?
If your bonus is calculated as a percentage of your salary, your "Reference Salary" (your pay before the sacrifice) is used, so your bonus amount will not change.
Can I sacrifice my bonus or commission into my pension?
Yes. This is a highly tax-efficient way to save. To do this:
Speak with your manager or HR.
Sign a written agreement before the bonus is paid. This allows you to avoid both Tax and NI on that lump sum.
3. Mortgages, Loans, and Benefits
Will this affect my Mortgage application?
Most lenders use your Reference Salary (your pay before sacrifice) to calculate borrowing power. They view pension contributions as voluntary.
Tip: When applying, provide three months of payslips to show your full gross pay. Note that Santander is one of the few lenders known to occasionally view the lower taxable salary; check with your broker first.
How is my Student Loan impacted?
Because student loan repayments are calculated on your taxable gross pay, your repayments will decrease slightly. You will keep more of your money each month, though it may take slightly longer to pay off the total loan.
Does this affect State Benefits (Universal Credit/Child Benefit)?
Universal Credit/Tax Credits: Eligibility is based on your post-sacrifice (lower) salary, which may actually increase your entitlement.
Child Benefit: If you earn near the £60,000 threshold (where Child Benefit is taxed), salary sacrifice can lower your taxable income to help you retain more of your benefit payments.
Will it affect my State Pension?
As long as your salary remains above £129 a week (£6,708 per year), you continue to earn National Insurance credits toward your State Pension. Your entitlement will not be affected.
4. Leave and Life Events
What is the impact on Statutory Maternity Pay (SMP)?
Initial 6 weeks: SMP is 90% of your average earnings. If a sacrifice is in place during the assessment period, this figure may be lower. (This does not apply if your employer offers Enhanced Maternity Pay).
During Leave: Usually, your employer will take over your contributions so your statutory pay isn't reduced, ensuring your pension pot continues to grow as if you were working.
What about Sick Pay or Holiday Pay?
These are not affected. Your employer will use your Reference Salary (the amount before sacrifice) to calculate these payments.
5. Eligibility and Limits
Can I use Salary Sacrifice if I earn Minimum Wage?
No. By law, a salary sacrifice cannot take your pay below the National Minimum Wage (NMW). If you are at or near NMW, you will remain on a standard pension scheme so that you stay compliant with HMRC rules.
I am over the State Pension age—should I join?
Since you likely no longer pay National Insurance, you won't see the NI savings. However, it may still be beneficial if you want to:
Lower your taxable income to stay in a lower tax bracket.
Avoid the hassle of claiming back higher-rate tax relief manually.
6. Your Choices
Can I opt out?
Yes. If you prefer not to use Salary Sacrifice, inform your employer. You will remain on the standard workplace pension scheme instead.
Can I still change my contribution levels?
Yes. You can increase your contributions at any time (usually subject to a 5% minimum). Each change requires a quick digital "contractual change" agreement, which platforms like Mintago can handle for you automatically.
Have a specific question about your payslip? Please reach out to the HR or Payroll team.