Comparing salary versus better pension contribution

Scenario

Two roles offer different structures for the same broad level of seniority:

• Option A: £50,000 salary
• Option B: £47,000 salary + 8% employer pension contribution (£3,760/year into pension)

Option A pays more cash. Option B pays less cash but adds meaningful pension on top. This example quantifies the trade-off using 2025-26 tax rules.

Option A: £50,000 salary

• Taxable income: £50,000 − £12,570 = £37,430
• Income tax: £37,430 × 20% = £7,486
• Employee NI: £37,430 × 8% = £2,994
• Take-home: £39,520/year (£3,293/month)

Option B: £47,000 salary + 8% employer pension

• Taxable income: £47,000 − £12,570 = £34,430
• Income tax: £34,430 × 20% = £6,886
• Employee NI: £34,430 × 8% = £2,754
• Take-home: £37,360/year (£3,113/month)

The employer pension contribution: 8% × £47,000 = £3,760/year paid directly into your pension, with no income tax or NI deducted on that contribution.

Side-by-side comparison

| | Option A (£50k) | Option B (£47k + 8% pension) | |---|---|---| | Gross salary | £50,000 | £47,000 | | Income tax | £7,486 | £6,886 | | Employee NI | £2,994 | £2,754 | | Take-home cash | £39,520 | £37,360 | | Monthly take-home | £3,293 | £3,113 | | Employer pension | — | £3,760 |

The cost-benefit of Option B

By taking Option B, you:

• Give up £2,160/year in take-home cash (£180/month)
• Receive £3,760/year in pension — a 43% discount on that pension value

In other words, for every £1 of take-home you forego, you gain £1.74 in pension. This is because the employer pension contribution bypasses income tax and NI entirely on the way in. There is no more tax-efficient way to build wealth than an employer pension contribution at this level.

How to think about the 43% discount

If you wanted to build the same £3,760 of pension value yourself from Option A's after-tax cash, the path would be:

• Contribute £3,760 personally from your net pay — this gets basic-rate tax relief, so the pension receives £3,760 but you only pay in £3,008 (with £752 added by HMRC)
• But you have still used £3,008 of your after-tax income, versus only £2,160 under Option B

Option B is a more efficient route to the same pension outcome.

When the cash difference matters more

The £180/month gap is meaningful if: - You have short-term financial commitments (rent, loan repayments, childcare) - You are building an emergency fund and need the cash flow - The pension is not accessible for many years and the present-day liquidity matters to you

When the pension option wins

• You are planning for the medium or long term and value tax-free growth inside a pension
• You are in your 30s or 40s and compound growth on the extra pension contributions is significant
• You have adequate cash reserves and the £180/month difference is not a constraint

Practical next step

Use the job offer comparison calculator to model the take-home gap in full, then test further contribution levels with the salary sacrifice calculator. The broader framework is in the guide How to compare salary, bonus, pension, and job offers.