Salary sacrifice vs net pay: the £340 your payslip is hiding
Two identical jobs, identical salaries, identical 5% pension contributions — and different take-home. The only difference is the mechanism your employer uses to collect the pension.
The worked example
£40,000 salary, 5% pension (£2,000 a year), Plan 2 loan — the only difference between these two payslips is how the pension is collected.
Net pay arrangement
pension deducted before tax — but after NI & loan
Salary sacrifice
pay reduced — pension escapes tax, NI & loan
The £340 is exactly 8% National Insurance plus 9% student loan on the £2,000: sacrifice reduces the pay those deductions are calculated on; net pay does not.
What does the £2,000 escape?
There are three collection mechanisms, and the whole question is which deductions the contribution escapes under each.
| Deduction on the £2,000 | Salary sacrifice | Net pay | Relief at source |
|---|---|---|---|
| Income tax (20%) | ✓ escapessaves £400 | ✓ escapessaves £400 | ✓ escapes*20% added in pot |
| National Insurance (8%) | ✓ escapessaves £160 | ✗ charged | ✗ charged |
| Student loan (9%) | ✓ escapessaves £180 | ✗ charged | ✗ charged |
| Take-home on £40k vs net pay | +£340/yr | — | ≈ — |
* Relief at source comes from taxed pay; the provider adds basic-rate relief inside the pot, and higher-rate taxpayers reclaim the rest via self-assessment. Common in master-trust schemes. The calculator models all three — your payslip or provider will tell you which you are on.
Why it matters when comparing jobs
Two offers with 'the same pension' can differ by hundreds of pounds a year purely on mechanism — and the gap grows with salary and contribution rate. When comparing jobs in the calculator, set each role's contribution method separately; the payslip panel shows exactly where the difference lands. Mechanism is one of the few pure-money facts in a job decision — most of what actually decides one (hours, stress, flexibility, growth) lives on the calculator's separate life axis, so a £340 mechanism gap gets weighed honestly rather than deciding anything on its own. Related: what an employer match is worth and why sacrifice is king above £100k.
Run this scenario with your own numbers
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