How a £10,000 Pension Contribution Can Boost Your Take-Home Pay (and Your Future Wealth)

If you earn a six-figure salary, it’s easy to think “an extra £10,000 is just more money in the bank.” But the UK tax system doesn’t work like that.

In fact, if you earn £110,000 instead of £100,000, you could end up with a lot less of that £10,000 in your pocket than you expect.

That’s because of a sneaky tax trap that kicks in once your income passes £100,000 — and a well-timed pension contribution can be your escape route.

The £100,000–£125,140 Danger Zone

Once your income goes above £100,000, you start to lose your personal allowance (the amount of income you can earn tax-free).

For every £2 you earn over £100,000, you lose £1 of this allowance. By the time you reach £125,140, you’ve lost it completely.

This creates an effective tax rate of 60% in that income band:

• 40% higher-rate income tax

• Plus an extra 20% because you’re being taxed on income that would otherwise be tax-free.

The Numbers — £110,000 vs £100,000 (2025/26)

The rest — £6,200 — goes straight to HMRC.

How a Pension Contribution Changes the Game

If, instead of taking the £110,000 as salary, you pay £10,000 directly into your pension via salary sacrifice, your taxable income drops back to £100,000.

Here’s what happens:

• You keep your full £12,570 personal allowance

• You avoid the 60% effective tax band

• You still get the full £10,000 invested for your retirement

Why You Might Get £11,500 in Your Pension Instead of £10,000

When you sacrifice £10,000 of salary into your pension:

• Your employer saves £1,500 in NI (15% of £10,000)

• Some employers keep this saving

• Many pass it into your pension along with your contribution

If they pass it all on, your pension pot gets:

• £10,000 (your sacrificed salary)

• £1,500 (employer’s NI saving)
  
  = £11,500 total

If they also make their regular pension contributions on top, the number could be even higher.

It Gets Worse! — The Childcare Trap

Crossing the £100,000 income mark doesn’t just hurt because of the 60% tax rate.

It can also mean losing access to valuable government support.

Right now, parents of 3–4 year olds in England can get up to 30 hours of free childcare a week (worth several thousand pounds per year) if both parents earn under £100,000 each.

From September 2025, this will extend to younger children too.

If your income tips over £100,000 by even £1, you could lose this entitlement entirely.

That means:

• A £10,000 salary increase could actually cost you £5,000–£8,000 or more in lost childcare support on top of the extra tax.

• In extreme cases, the combined effect of tax, NI, and lost childcare can leave you worse off overall than if you’d stayed under £100,000.

By using pension contributions or other allowable deductions to bring your adjusted net income back under £100,000, you could preserve your free childcare entitlement and avoid this hidden pay cut.

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