Salary sacrifice

How much can you — salary sacrifice into your pension?

Four constraints govern how much you can sacrifice: the annual allowance, the NMW floor, the 100% of earnings rule, and the tapered allowance for high earners. Here's how they interact.

By Pension Bible editorial team·Last reviewed 9 April 2026·7 min read

The annual allowance ceiling: £60,000 total pension input

The annual allowance is the primary constraint. For 2025/26 it stands at £60,000 — and it covers all pension contributions flowing into your defined contribution pot from every source: your own contributions, employer contributions, and amounts routed via salary sacrifice.

This matters because salary sacrifice contributions are treated as employer contributions for tax purposes. If your employer contributes 5% of your £80,000 salary (£4,000) and you sacrifice an additional 20% (£16,000), your total pension input for the year is £20,000 — well within the limit. But a higher earner with a generous employer match who sacrifices a large proportion of salary can reach £60,000 faster than they expect.

Contributions above the annual allowance are subject to an annual allowance charge. The charge is calculated at your marginal income tax rate and is designed to claw back exactly the relief you gained by going over. In effect, you get no tax advantage on contributions above the limit and may face a tax bill to boot.

Use the annual allowance checker to see where you stand before significantly increasing your sacrifice rate.

For defined benefit schemes, the pension input is calculated differently — using the HMRC-prescribed factor of 16× the annual pension accrual plus any lump sum increase. If you have a DB scheme and a DC arrangement running in parallel, both count towards the same £60,000 cap.

The minimum wage floor

Salary sacrifice is a contractual reduction to your gross pay. Employers are legally prohibited from operating sacrifice arrangements that would take your hourly pay below the National Minimum Wage or National Living Wage.

For 2025/26, the National Living Wage for workers aged 21 and over is £12.21 per hour. For a full-time worker on 37.5 hours per week, that equates to roughly £23,840 per year. No salary sacrifice can take your contractual pay below that threshold.

In practice, employers typically build a floor into their sacrifice systems that prevents you from selecting a sacrifice level that would breach NMW. But it is still worth understanding the ceiling this imposes. A worker earning £26,000 cannot sacrifice £10,000, because the resulting £16,000 would be below minimum wage equivalent for full-time hours. The maximum sacrifice in that case is approximately £2,160 — enough to reach the NMW floor, no more.

For higher earners, the NMW floor is largely academic. On a £50,000 salary the NMW constraint does not bind until you are sacrificing more than £26,000 — a level few workers approach.

The 100% of earnings rule

There is a separate rule that total pension contributions from all sources cannot exceed 100% of your UK taxable earnings in a tax year. For most workers this never becomes relevant — even maximising an annual allowance sacrifice would leave earnings above zero.

Where it can bite is in unusual situations: a year in which earnings drop sharply mid-year (for example, a career break), or where someone has significant pension contributions continuing from a previous employer while earning little in the current year. In those cases, the 100% earnings cap may be the binding constraint before the £60,000 annual allowance is reached.

When carry forward allows more

If your pension contributions have been below the annual allowance in any of the three previous tax years, you can carry that unused allowance forward and use it in the current year — potentially on top of the current year's £60,000.

The three-year lookback is: 2024/25, 2023/24, and 2022/23. The annual allowance in each of those years was £60,000, £60,000, and £40,000 respectively. In theory, someone who made no contributions in any of those years could use up to £220,000 of total pension input in 2025/26 (£40,000 + £60,000 + £60,000 + £60,000 current year). More realistically, a worker who sacrificed nothing for two years and wants to make a large contribution now has meaningful carry forward available.

Carry forward must be used in order, oldest year first. You must have been a member of a UK-registered pension scheme in each year you are carrying forward from — even if you made no contributions. You cannot carry forward if you triggered the Money Purchase Annual Allowance (MPAA) by flexibly accessing a DC pot; in that case your DC limit is capped at £10,000.

The carry forward calculator shows your specific unused allowance based on your contributions history.

When the tapered annual allowance reduces the ceiling

For high earners, the £60,000 ceiling tapers downwards. The taper applies when two conditions are both met:

• Threshold income (broadly, income before pension contributions) exceeds £200,000
• Adjusted income (threshold income plus all employer pension contributions, including sacrifice) exceeds £260,000

Above the £260,000 adjusted income point, the annual allowance reduces by £1 for every £2 of adjusted income over £260,000, down to a minimum of £10,000 for those with adjusted income above £360,000.

Salary sacrifice reduces threshold income (by reducing your gross pay) but not adjusted income (because the employer contribution — which includes the sacrificed amount — is added back in). For workers near the taper boundary this is a meaningful distinction. Sacrifice may reduce threshold income below £200,000, which entirely avoids the taper — but the numbers need careful modelling for each individual.

This is one of a handful of areas in the UK pension system where the interaction between variables is complex enough that professional advice is genuinely valuable before making large sacrifice decisions.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.