What that looks like in numbers
Where an individual earns £95,000 from their main employment and earns £15,000 profit a consultancy business their total income is £110,000. Resulting in the top £10,000 being taxed at 60%. The tax due for the 2026/27 tax year would be £33,432.
A pension contribution of £10,000 brings earnings below the £100,000 to £125,140 super tax bracket, and there are two ways to do it.
Option 1: salary sacrifice
You agree with your employer to give up £10,000 of salary, in replacement for a £10,000 employers pension contribution instead. This reduces your income to £100,000, so you get your full personal allowance back.
Your tax bill falls to £27,432, a saving of £6,000. You also save £200 of National Insurance, and your employer saves £1,500.
Option 2: paying into a pension yourself
If salary sacrifice isn’t available, you can pay in personally. You pay £8,000 and your pension provider claims £2,000 tax relief from HMRC, so £10,000 goes into your pension. Then, when you complete your tax return:
- Your basic rate band is extended by £10,000. More of your income is taxed at 20% instead of 40%.
- Your personal allowance comes back. The allowance is worked out on your “adjusted net income”, which simply means your total income less your gross pension contributions. £110,000 less £10,000 is £100,000, so you keep the full £12,570.
That’s £4,000 off your tax bill, plus the £2,000 added to your pension: the same £6,000 saving. The difference is timing. With salary sacrifice you see the benefit straight away in your payslip. With a personal contribution, most of it comes when you file your tax return.
A change coming in 2029
In the November 2025 Budget, the government announced that from 6 April 2029, only the first £2,000 a year of salary sacrificed into a pension will be free of National Insurance. Anything above that will have employee and employer National Insurance charged on it, as if it were paid as salary.
The income tax saving isn’t affected. You’ll still get your personal allowance back and save £6,000 in our example. What changes is the National Insurance. On a £10,000 sacrifice, at today’s rates, you’d save £40 rather than £200, and your employer would save £300 rather than £1,500.
Therefore from 2029, the gap between salary sacrifice and paying in yourself narrows to mainly a question of timing. If your employer offers salary sacrifice, the next few tax years are when it’s worth the most.
What does this mean for you?
Either way, £10,000 goes into your pension and costs you around £4,000. That’s money working for your future rather than going to HMRC.
There are limits on how much you can pay into a pension each year, so check before you pay in. And for this tax year, the contribution needs to be made by 5 April 2027.
If your income is heading over £100,000 this year, get in touch and we’ll work out the right amount for you. You know where we are.
