Salary sacrifice on GBP 35,000

## Scenario

An employee earns £35,000 and sacrifices £3,000 into their workplace pension. Their contractual gross pay drops to £32,000. Both income tax and NI are calculated on the lower figure, reducing the real cost of the pension contribution below £3,000. At £35,000 the salary is also comfortably above the Plan 2 student loan threshold (£27,295), so the sacrifice reduces loan repayments as well.

All figures use 2025-26 rates: personal allowance £12,570, basic-rate income tax 20%, employee NI 8% between £12,570 and £50,270, Plan 2 student loan 9% above £27,295.

Before and after comparison

| | Before sacrifice | After sacrifice | |---|---|---| | Gross pay | £35,000 | £32,000 | | Taxable pay (gross minus £12,570) | £22,430 | £19,430 | | Income tax (20%) | £4,486 | £3,886 | | Employee NI (8%) | £1,794 | £1,554 | | Take-home pay (no student loan) | £28,720 | £26,560 | | Pension contribution | £0 | £3,000 |

What the sacrifice actually costs (no student loan)

| | Amount | |---|---| | Take-home reduction | £2,160 | | Pension gained | £3,000 | | Tax saved | £600 | | NI saved | £240 | | Total relief | £840 | | Effective discount | 28% |

Detailed deduction working

Before sacrifice: - Taxable pay: £35,000 − £12,570 = £22,430 - Income tax: £22,430 × 20% = £4,486 - NI: (£35,000 − £12,570) × 8% = £22,430 × 8% = £1,794 - Take-home: £35,000 − £4,486 − £1,794 = £28,720

After sacrifice (gross £32,000): - Taxable pay: £32,000 − £12,570 = £19,430 - Income tax: £19,430 × 20% = £3,886 - NI: (£32,000 − £12,570) × 8% = £19,430 × 8% = £1,554 - Take-home: £32,000 − £3,886 − £1,554 = £26,560

Student loan interaction (Plan 2)

| | Before sacrifice | After sacrifice | |---|---|---| | Gross pay | £35,000 | £32,000 | | Amount above £27,295 | £7,705 | £4,705 | | Plan 2 repayment (9%) | £693 | £423 | | Student loan saving | — | £270 |

With the student loan saving factored in, the net cost falls significantly:

| | Amount | |---|---| | Take-home reduction (tax + NI) | £2,160 | | Student loan saving | £270 | | Actual net cost | £1,890 | | Pension gained | £3,000 | | Effective discount (with loan saving) | 37% |

A Plan 2 borrower at £35,000 sacrificing £3,000 gets £3,000 into pension while their combined deductions (tax, NI, and loan) fall by a total of £1,110.

What to notice

• The basic-rate tax and NI discount is always 28% at this salary — that is the floor regardless of student loan status.
• Plan 2 borrowers add a further 9% relief on the sacrificed slice because student loan repayments are calculated on gross pay. The combined effective discount reaches 37%.
• Monthly take-home reduction without loan saving: £180. With Plan 2 saving: £157.50. The difference is real cash each month.
• Both the pre- and post-sacrifice figures remain well within the basic-rate band, so there is no rate-band crossing to manage at this level.
• The sacrifice does not affect the personal allowance at £35,000. The tapering of the allowance only starts above £100,000.

Best next step

Use the salary sacrifice calculator to test different contribution levels and see the monthly cash flow impact. For the wider picture on how sacrifice interacts with student loan repayments, read Student loans and take-home pay and How salary sacrifice changes net pay and pension value.