Salary Sacrifice vs SIPP: Which Gives You the Best Tax Benefits?
By Team SalaryCalculate · 7/10/2025
Both Salary Sacrifice and Self-Invested Personal Pensions (SIPPs) offer generous tax advantages — but they work in very different ways. If you're trying to decide which approach suits you best, this guide breaks down how each one works, their pros and cons, and how to decide based on your income and employer benefits.
What Is Salary Sacrifice?
Salary sacrifice is an arrangement with your employer where you agree to reduce your gross salary, and your employer contributes the "sacrificed" amount directly into your workplace pension.
Key Benefits:
- Income tax relief at source
- National Insurance savings for both employee and employer
- Simple – no need to claim via Self Assessment
What Is a SIPP?
A Self-Invested Personal Pension (SIPP) is a type of private pension you manage yourself, often used for greater investment control.
Key Benefits:
- Tax relief of 20% added automatically
- Additional tax relief (up to 45%) reclaimable via Self Assessment
- Flexibility in investment choices and providers
Salary Sacrifice vs SIPP: Side-by-Side Comparison
| Feature | Salary Sacrifice | SIPP |
| Tax Relief | Automatic (via PAYE) | 20% added automatically, claim extra via Self Assessment |
| NI Savings | Yes (employee & employer) | No |
| Impact on Adjusted Income | Reduces adjusted income | Reduces adjusted net income |
| Claim Process | No claim required | Self Assessment for higher/additional rate |
| Employer Contributions | Often includes match or NI reinvestment | Rare (unless negotiated separately) |
| Investment Flexibility | Limited (workplace scheme) | High (you choose provider & assets) |
Which Saves More Tax?
Higher Rate Taxpayer Example (£60,000 salary):
Option 1: Salary Sacrifice £10,000
- Reduces taxable salary to £50,000
- Saves £4,000 income tax (40%)
- Saves £1,200 NI (12%)
- Employer saves NI and may reinvest in pension
Option 2: SIPP Contribution £8,000 (net)
- £2,000 added by HMRC (total £10,000 gross)
- Claim £2,000 back via Self Assessment
- Still pay full NI and need to claim manually
Result: Salary sacrifice may save £1,200+ more in NI — especially if your employer passes on their savings.
How Each Affects Adjusted Income
- Salary sacrifice reduces adjusted income — useful for:
- Avoiding tapered annual allowance
- Qualifying for child benefit
- Preserving personal allowance
- SIPP contributions reduce adjusted net income — still valuable, especially when salary sacrifice is not offered
See also: SIPP for Higher Rate Taxpayers
Can You Use Both Together?
Yes — and many higher earners do:
- Use salary sacrifice up to your employer’s contribution cap
- Then top up with a SIPP using carry forward and personal savings
This approach maximises tax relief, investment choice, and employer generosity.
Key Considerations Before Choosing
- Does your employer offer salary sacrifice? If yes, use it first.
- Do you want full control over investments? Use a SIPP.
- Are you a higher/additional rate taxpayer? Consider using both.
- Are you near £100,000 income? Either method can help restore personal allowance.
Related Reading
- SIPP Tax Relief Explained
- How Much Can I Pay Into a SIPP?
- SIPP for Higher Rate Taxpayers
- UK SIPP Calculator
Summary
Salary sacrifice offers a more streamlined route to tax savings, especially with National Insurance benefits and employer contributions. SIPPs offer more control and are valuable when salary sacrifice isn’t available or when you're topping up your pension. For maximum tax efficiency, many higher earners combine both strategies.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Speak to a qualified adviser before making pension decisions.