Why the result can be different
With salary sacrifice, your salary is reduced before tax and NI are worked out. Your employer pays the sacrificed amount directly into your pension. Because the money never reaches you as salary, you save both income tax and employee National Insurance.
With a SIPP, you usually pay from your take-home pay. Your pension provider then adds 20% basic-rate tax relief, and if you pay tax above the basic rate you can claim more from HMRC through Self Assessment or by asking HMRC to adjust your tax code.
The NI saving is the main reason salary sacrifice is often more efficient. But the exact employee NI saving depends on which NI band that slice of pay falls into. For most higher earners, the rate on earnings above the Primary Threshold and below the Upper Earnings Limit is 8%. Above the Upper Earnings Limit (£50,270 for 2026/27) the rate is 2%.
Side-by-side comparison
Here is a simplified example where a £110,000 earner contributes £10,000 extra to their pension. In both cases the same gross amount reaches the pension.
| Salary Sacrifice | SIPP (Relief at Source) | |
|---|---|---|
| Gross going into pension | £10,000 | £10,000 (you pay £8,000 + provider claims £2,000) |
| Income tax saved | £4,000 (40%) | £4,000 (40%) |
| Employee NI saved | Up to £800 (8%)* | £0 |
| Employer NI saved | £1,500 (15%) | £0 |
| ANI reduction | £10,000 | £10,000 |
*The employee NI saving depends on which NI band the sacrificed pay falls into. 8% applies between the Primary Threshold and the Upper Earnings Limit. Above the UEL the saving is 2%.
Important: employer NI sharing is optional. Some employers add part of their NI saving into your pension. Some do not.
When salary sacrifice wins
Salary sacrifice is often better when:
- Your employer offers it
- You want maximum tax efficiency per pound contributed
- Your employer shares their NI saving with you
- You are comfortable with a lower contractual salary
- You do not need fine-grained control over provider or investment choices
The employee NI saving is the main advantage. On £10,000 sacrificed within the main NI band, that could be up to £800 you simply do not get with a SIPP.
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When a SIPP wins
A SIPP can be better when:
- Your employer does not offer salary sacrifice
- You want full control over provider, investments and fees
- You want to time contributions (e.g. a lump sum before tax year end)
- You have multiple income sources and want to contribute from savings or bonuses
- You want to use carry forward rules to contribute more than £60,000
A SIPP also gives you flexibility to make one-off top-ups at any time, which can be useful for fine-tuning your ANI near the end of the tax year.
Can you use both?
Yes. There is nothing stopping you from using salary sacrifice through your employer and also making personal contributions to a SIPP. The combined gross contributions count towards the £60,000 annual allowance.
A common approach for £100k+ earners:
- Use salary sacrifice for regular monthly contributions (captures the NI saving)
- Use a SIPP for lump sum top-ups near the end of the tax year (to fine-tune your ANI)