What is a salary sacrifice?

Salary sacrifice means giving up part of your salary in return for a tax or National Insurance benefit. The benefit can be a pension contribution. If it is, your employer pays it directly into your pension pot on top of their normal contribution.

You can sacrifice your salary in two ways, either through a simple salary sacrifice or ‘SMART’ (Save More And Reduce Tax). Both mean that you and your employer pay less National Insurance.

Simple salary sacrifice and SMART salary sacrifice

Simple salary sacrifice

You agree with your employer that you’ll give up a fixed amount of your salary, to be paid into your pension. As you’re effectively earning a lower salary,  both you and your employer pay lower National Insurance contributions. The amount you save in National Insurance is show in your take-home pay (net salary) which means your take-home pay will increase.

SMART (Save more and reduce tax)

SMART salary sacrifice is a way of paying pension contributions that increases the amount paid into your pension, without reducing take home pay.

For SMART salary sacrifice your take home pay remains the same. The money you save on National Insurance goes into your pension, increasing your contributions at no cost to yourself. Your employer may choose to put their National Insurance saving into your pension too, but they don’t have to.

Not all employers offer salary sacrifice, so check with your employer or visit your scheme website, you can find the link to your scheme website on any email or letter about your pension.

Read our guide to SMART salary sacrifice.