Keep my 30 hours

Fix it · 2026/27

Salary sacrifice vs relief at source for childcare

Salary sacrifice and a personal pension or SIPP can both lower your adjusted net income (ANI). Compare the same gross pension amount, then look at the cash you need and when relief arrives. Check your figures in the calculator.

Last updated: 28 October 2026 · Keep my 30 hours

Quick ANI check

Children
Other existing pension contributions

Amounts stay in the ANI calculation when you change pension type. Enter each contribution once.

Quick check uses England and the example pension already shown. Open the full calculator

Figures checked against the 28 October 2026 Budget

Over the limit

You're £4,500 over. Sacrificing £375 a month into your pension costs about £143 a month and could protect up to £1,117 a month of childcare.

Raise your salary sacrifice from 5% to 9.1% of salary in total (about 4.09% extra).

Percentages use your full entered salary. Your scheme may use different pensionable pay. New total percentages are rounded up to 0.01%; pound estimates use the exact top-up.

30 free hours and Tax-Free Childcare

You lose both+£4,500 pensionYou: £104,500

Your adjusted net income (ANI)

Salary
£110,000
Salary sacrifice pension, 5%
−£5,500
Adjusted net income
£104,500

You come out ahead by £11,690 a year

plus £4,500 more in your pension

Which route lowers your income by the most?

The 28 October 2026 Budget kept the policy announced at Budget 2025: from April 2029, only £2,000 a year of pension salary sacrifice receives National Insurance relief. Sacrifice above £2,000 loses the NI saving, but income tax relief is unaffected. It still reduces ANI and can help you stay within £100,000.

The same gross pension contribution can give the same ANI reduction through different routes. Salary sacrifice reduces your pay before the income calculation. A workplace pension taken before income tax also reduces ANI by its gross amount, rather than the smaller after-tax cost to you.

With a personal pension or SIPP, the cash payment is smaller than the gross pension addition. To add £4,500, you pay £3,600 and your provider adds £900. Enter the cash payment in the calculator so the tax relief is counted once.

The right comparison starts with how far your ANI is over the limit. It is not a comparison between equal cash payments into different pension types. Otherwise, you may overlook the provider’s relief or subtract a payroll contribution twice.

What do you pay now, and what comes back later?

For an extra £4,500 gross contribution, salary sacrifice costs about £1,710 after tax and National Insurance. The workplace pension cost is about £1,800 after income tax relief. Your employer’s arrangement may affect when that change appears in your pay.

The personal pension or SIPP route needs £3,600 cash upfront. Your provider adds £900, and another £1,800 comes back through your tax return. That leaves a final cost of £1,800, but the refund is not cash you can spend on payment day.

Choose the route you can use and afford, rather than looking only at the final cost. Salary sacrifice must leave enough pay, and a personal pension payment needs to arrive by 5 April. Check pension limits and payment timing before moving money.

A worked example

Your adjusted net income (ANI)

Salary
£110,000
Salary sacrifice pension, 5%
−£5,500
Adjusted net income
£104,500
Over the £100,000 limit by
£4,500

What you'd lose each year

30 free hours, child 1 aged 9 months–2 years (1,140 hours at £10)
£11,400
Tax-Free Childcare, child 1
up to £2,000
At stake
up to £13,400

The fix: sacrifice £375 more a month (5% → 9.1% total)

Extra pension this year
£4,500
Income tax and National Insurance you no longer pay
−£2,790
Costs you
£1,710

You come out ahead by £11,690 a year

plus £4,500 more in your pension

You earn £110,000 and already put 5% of your salary into a pension through salary sacrifice. That leaves ANI of £104,500, which is £4,500 over the limit. A further £4,500 gross pension contribution brings it back to £100,000.

Through salary sacrifice, that top-up costs about £143 a month after tax and National Insurance. A workplace pension costs £1,800 over the year. With a personal pension or SIPP, you pay £3,600, your provider adds £900, and you claim another £1,800 through your tax return.

For one child aged nine months to two years in England, the free hours are worth £11,400 at £10 an hour. Tax-Free Childcare adds up to £2,000 when you leave the bill blank. Together, that is up to £13,400 of childcare against a salary sacrifice cost of £1,710 a year.

Could your partner or other income change the answer?

Check each parent separately before counting on the childcare. Your partner’s income is not added to yours for the upper limit. If their ANI is over £100,000, a top-up to your pension alone will not get the support back.

For example, you could earn £95,000 while your partner has ANI of £101,000. Your own income is within the limit, but your partner still needs a £1,000 gross pension top-up. Through salary sacrifice, their estimated cost is £380 after tax and National Insurance.

Include the full amounts of savings interest, dividends and rental profit in other income. They count towards ANI even when a savings or dividend allowance covers some of the tax. Keep taxable benefits separate, and enter expected self-employed profit only once.

Each parent also needs enough expected earnings from work, with exceptions for some circumstances. Pension contributions and Gift Aid do not reduce that earnings check here. Benefits, savings, dividends and rent do not help you meet it, so check the official guidance if your work income is low.

What should you do next?

Start with your best estimate for the whole tax year, then change one entry at a time. Include any bonus you expect and any taxable benefits you receive. Check your pension statement or payslip so you know whether an entry is gross or cash actually paid.

Compare the cash you need now with the final cost after relief. A personal pension or SIPP needs the upfront payment before 5 April, even if a later tax refund reduces its cost. Ask your provider about payment timing and your employer about any salary sacrifice arrangement.

Use your actual paid childcare bill, excluding free hours, if you know it. Leaving that box blank shows the maximum Tax-Free Childcare amount, which you may not receive in full. Check the hourly value too, because it should reflect childcare you would otherwise pay for.

Before you act, check pension limits and whether the payment fits your budget. With other income, a large top-up or both parents over, consider a regulated financial adviser. The figures help you compare choices; they do not replace a check of your own eligibility.

Check your ANI in the calculator

Questions about this guide

Does your partner need a separate check?

Yes. The income limit applies to each parent, rather than your combined pay. If both of you are over, both need to get within the limit.

Is the personal pension payment the same as its final cost?

No. You pay cash first, your provider adds tax relief, and you claim any further relief through your tax return. The final cost can be lower than the cash you need upfront.

When should you check again?

Check again when your pay, bonus, benefits or other income change. Reconfirm Tax-Free Childcare every 3 months, and make personal pension payments by 5 April for this tax year.

Sources

Rules checked on 28 October 2026.