Discover how salary sacrifice pension contributions can reduce your student loan repayments while building retirement savings. Only salary sacrifice affects student loan calculations.
Only salary sacrifice reduces your contractual salary for student loan calculations. Other pension methods do not affect student loan repayments.
Annual contribution: £2,000
2012-2023 students (England/Wales)
Reduces gross contractual salary - DOES reduce student loan repayments
Threshold: £27,295 per year
Rate: 9.0% above threshold
Write-off: 30 years
Monthly threshold: £2,275
Gross Salary
£40,000
Income Above Threshold
£12,705
Annual Student Loan
£1,143
Monthly Student Loan
£95
Adjusted Salary
£38,000
(-£2,000 to pension)
Income Above Threshold
£10,705
Annual Student Loan
£963
Monthly Student Loan
£80
£180
Annual Saving
£15
Monthly Saving
15.7%
Reduction
| Saving Type | Annual Amount | Monthly Amount | Rate on Contribution |
|---|---|---|---|
| Student Loan Reduction | £180 | £15 | 9.0% |
| Income Tax Saving | £400 | £33 | 20-45% |
| National Insurance Saving | £240 | £20 | 12% |
| Total Savings | £820 | £68 | 41.0% |
| Pension Contribution | -£2,000 | -£167 | 100% |
| Net Effect on Take-Home | £-1,180 | £-98 | - |
Reduces gross contractual salary - DOES reduce student loan repayments
Post-tax contribution with tax relief - does NOT reduce student loan repayments
Pre-tax but post-gross - does NOT reduce student loan repayments
Annual contribution: £2,000
Total tax relief: £820
Effective rate: 41.0%
Write-off in: 30 years
You save £820 annually while building retirement savings.
Particularly beneficial if unlikely to repay loan in full before write-off.
Salary sacrifice is particularly beneficial for borrowers who are unlikely to repay their student loan in full before write-off (30 years for Plan 2). By reducing current repayments, you effectively get tax relief on money you might never have had to repay anyway.
The effective rate of tax relief can be substantial: 9.0% student loan saving plus 20-45% income tax plus 12% National Insurance, potentially totaling over 40% relief on contributions.
Speak with your HR department about setting up salary sacrifice pension contributions, or consult a financial advisor to ensure this strategy aligns with your overall financial goals.