A useful decision starts with the right question. Read the guide, model your numbers, then check what the calculation leaves out.
01 · Rules checked 6 September 2026 · 2026/27
What does a pension contribution really cost?
Your pension contribution and the reduction in your spending money are different numbers. For salary sacrifice, compare take-home pay before and after the change, then check that you can afford the difference.
For example, in England, Wales or Northern Ireland, moving from £110,000 pay to £100,000 through £10,000 of salary sacrifice reduces modelled income tax by £6,000 and employee NI by £200. The take-home cost is £3,800 a year, about £317 a month. This assumes employment income only, standard allowances and category A NI.
That result combines the higher-rate band with restoration of Personal Allowance. It is specific to these inputs. Scottish rates differ. A personal SIPP payment is a different mechanism and does not produce the same NI saving.
Before changing payroll
Check all income sources, your total pension input including employer contributions, annual allowance restrictions and accessible cash needs. Pension tax savings do not make locked-away money available for current spending.
Start by making the comparison fair. Both options should use the same lump sum, the same monthly budget and the same time horizon. Otherwise the headline winner may simply be the option that received more money.
Our model compares investing the lump sum against reducing the mortgage payment and investing the monthly saving. It subtracts remaining mortgage debt from investments at the comparison date. Your property is excluded from both sides because its value is the same in both scenarios.
Three questions the result cannot answer
Will your lender reduce payments or shorten the term? Will an overpayment trigger a charge? Could you tolerate investment losses when you need the money? Confirm your lender’s treatment and retain cash for foreseeable spending before interpreting a projected advantage.
Try returns three percentage points lower. A result that changes winner under a modest assumption change deserves more attention than a single optimistic forecast.
Start with spending, not salary. Divide the annual amount you want a portfolio to fund by an assumed withdrawal rate. At £60,000 and 3.5%, the illustrative target is £1.71 million. That arithmetic is a planning starting point, not evidence that withdrawals will last.
Keep the calculation consistent: use today’s spending and returns after inflation. Contributions must rise with inflation to preserve their purchasing power. Allow for withdrawal taxes and spending that may change over time.
Separate wealth from access
A home or pension may make you wealthy without funding next year’s bills. Before retiring, map accessible assets to the years before pension access, then consider pension and State Pension income separately. Sequence-of-returns risk also matters: poor returns early in retirement can have a disproportionate effect.
For a broader pension-income estimate including State Pension and different pension types, see MoneyHelper’s pension calculator. HENRY’s tool models accumulation only.
A target salary becomes more useful when you can name the work that justifies it. Choose a role with greater responsibility, a scarce skill, or a business problem where you can demonstrate measurable impact.
A practical 90-day exercise
Collect five relevant role descriptions and identify repeated requirements.
Choose one gap you can close through a real project.
Record the baseline, your contribution and the outcome in money, time or quality.
Discuss the evidence and next-level expectations with a manager or recruiter.
The income planner shows the annual growth needed to reach your target. It does not predict market pay. Compare the whole package: bonus probability, pension, equity risk, commuting costs, working hours and the effect on your household.
Original HENRY educational guidance. Not personalised financial advice. Sources checked on the dates shown; no independent professional review has been completed. Read our standards.