Salary sacrifice, net pay and relief at source

Workplace and personal pensions take contributions in one of three ways. All three lower your adjusted net income, but they do it differently, and only one saves National Insurance.

Salary sacrifice

You agree to a lower salary and your employer pays the difference into your pension. Because your salary is lower, you save income tax and National Insurance, and some employers add their own NI saving to your pension. From 6 April 2029 only the first £2,000 a year of pension salary sacrifice will be free of National Insurance, for you and your employer; the income tax saving stays. A lower salary can affect some things worked out from pay, so check mortgage applications, life cover and family leave pay.

Net pay

Your contribution is taken from your pay before income tax, so you get tax relief at your top rate straight away. National Insurance is still worked out on your full salary.

Relief at source

You pay in from taxed income and the pension provider claims 20% basic-rate relief from HMRC: £80 from you becomes £100 in the pension. Higher-rate relief isn't automatic. You claim it through Self Assessment or by asking HMRC to change your tax code. For adjusted net income it's the gross £100 that counts, and the same applies to Gift Aid.

Which is best?

It usually depends on what your employer offers. Hundred Line lets you plan with whichever method you use, or try another, and shows the effect on take-home pay month by month.

Sources

• Tax on your private pension contributions (GOV.UK)
• Salary sacrifice for employers (GOV.UK)

Checked 31 October 2026 for England. This guide is general information, not financial advice.