What 5% Salary Sacrifice Costs on a £40k Salary
See how a 5% salary-sacrifice pension changes take-home pay on £40,000, including pension saved, tax and NI reduction, and payslip checks.
Direct answer: Sacrificing 5% of salary puts £2,000 a year into the pension. Monthly take-home falls by about £120, while Income Tax and NI fall by £560 a year.
Assumptions: England, Wales or Northern Ireland; standard 1257L tax code; 2026/27 rates; 52 paid weeks; no benefits or deductions except those shown.
The calculated comparison
| Scenario | Gross salary | Income Tax | National Insurance | Other deduction | Take-home a month |
|---|---|---|---|---|---|
| No pension or student loan | £40,000 | £5,486 | £2,194 | None | £2,693 |
| 5% salary sacrifice | £40,000 | £5,086 | £2,034 | Pension £2,000 | £2,573 |
Spendable pay and total reward move in different directions
A salary-sacrifice pension contribution reduces the cash that reaches your bank account, but the full contribution goes toward retirement saving. The fall in spendable pay is smaller than the amount entering the pension because the sacrificed salary is removed before the Income Tax and National Insurance calculation used here.
The comparison table separates those effects. Treat the pension contribution as part of your overall reward rather than as money lost, while still checking that the remaining monthly cash covers regular bills and short-term goals.
Confirm how your employer operates the pension
Not every workplace pension uses salary sacrifice. Relief-at-source and net-pay schemes handle tax relief differently, and ordinary employee contributions do not always reduce National Insurance. Ask payroll which method applies before expecting the same payslip result.
- Check whether the contribution is salary sacrifice, net pay or relief at source.
- Confirm the employer contribution and whether it increases when you contribute more.
- Ask whether the employer shares any National Insurance saving.
- Check which parts of pay count as pensionable earnings.
- Review how the lower contractual salary affects mortgage references or workplace benefits.
Adjust the estimate for your circumstances
Student-loan repayments, a non-standard tax code, Scottish Income Tax and other payroll benefits can change the result. Bonus sacrifice can also work differently from a regular monthly contribution. Use the personal calculator with the arrangement shown by your employer.
Read the pension and PAYE lines together
On the first affected payslip, compare gross pay, sacrificed salary, taxable pay, pension contribution, Income Tax and National Insurance. The pension line should reconcile with the scheme statement. If only the tax falls but National Insurance does not, the scheme may not be using the salary-sacrifice treatment assumed in this guide.
Run the numbers for your own situation
Official references: Figures use the 2026/27 Income Tax rates, employee National Insurance rates and pension tax-relief guidance. Figures are estimates; payslip timing and individual circumstances can change the result.