Salary Sacrifice Pension Changes from April 2029: What You Need to Know
The government has announced significant changes to salary sacrifice arrangements for pensions. From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice will be exempt from National Insurance.
Key Changes at a Glance
What's Changing
- • Only first £2,000 of salary sacrifice pension contributions exempt from NICs
- • Contributions over £2,000 subject to both employer and employee NICs
- • Income Tax relief on pension contributions remains unchanged
- • Changes take effect from April 2029
What's Not Changing
- • Salary sacrifice arrangements can continue
- • Income Tax relief on all pension contributions
- • Standard pension contribution tax treatment
- • First £2,000 still fully NIC-exempt
Understanding the Changes
Currently, when employees contribute to their pension through salary sacrifice, both the employee and employer save on National Insurance Contributions (NICs) on the entire sacrificed amount. This makes salary sacrifice an attractive option for pension savings, particularly for higher earners.
From April 2029, this benefit will be capped. Only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Any contributions above this threshold will be treated like standard pension contributions - still eligible for Income Tax relief, but now subject to both employer and employee National Insurance.
Important: This change only affects pension contributions made through salary sacrifice arrangements. Standard pension contributions (where you pay from your net salary) and employer-only contributions are not affected by these changes.
Who Will Be Affected?
The government states that most employees will not be impacted by these changes. The typical employee contributing through salary sacrifice often contributes less than £2,000 per year.
Those Most Affected
The changes primarily affect those making larger pension contributions through salary sacrifice, particularly:
- Higher earners maximizing pension tax relief
- Those making substantial additional voluntary contributions (AVCs)
- Employees using salary sacrifice to reduce taxable income
- Those approaching retirement making catch-up contributions
The government notes that "costs of relief through salary sacrifice relate disproportionately to pension contributions from those on higher incomes." This change aims to create a fairer system by aligning the treatment of larger salary-sacrificed contributions with standard pension contributions.
How Much Could This Cost You?
Let's look at some examples to understand the financial impact:
| Annual Salary Sacrifice | Amount Subject to NICs | Extra Employee NIC (8%) | Extra Employer NIC (13.8%) |
|---|---|---|---|
| £2,000 | £0 | £0 | £0 |
| £5,000 | £3,000 | £240 | £414 |
| £10,000 | £8,000 | £640 | £1,104 |
| £20,000 | £18,000 | £1,440 | £2,484 |
| £60,000 | £58,000 | £4,640 | £8,004 |
Note: These calculations assume the standard employee NIC rate of 8% and employer NIC rate of 13.8%. Actual rates may vary. Income Tax relief on pension contributions is not affected - you still receive tax relief at your marginal rate.
What This Means for Employers
Salary Sacrifice Can Continue
Employers can continue to offer salary sacrifice arrangements. The first £2,000 per employee remains fully NIC-exempt as before.
Payroll Changes Required
Employers will need to report total salary sacrifice amounts through their payroll software. HMRC will provide guidance on reporting requirements before April 2029.
Increased Employer Costs
Employers will pay NICs on salary sacrifice amounts exceeding £2,000 per employee. This may affect the attractiveness of offering generous salary sacrifice schemes.
What This Means for Employees
No Action Required Now
Employees don't need to take any immediate action. Your employer will handle the necessary payroll adjustments when the changes come into effect.
Review Your Pension Strategy
If you're making substantial salary sacrifice contributions, you may want to review your pension strategy closer to April 2029 to understand the impact on your take-home pay.
Pension Savings Still Tax-Efficient
Pension contributions remain tax-efficient. You still receive Income Tax relief on all contributions, and the first £2,000 through salary sacrifice remains NIC-free.
Timeline
Announcement
Government publishes guidance on the upcoming changes to salary sacrifice for pensions.
Preparation Period
Additional guidance published. Employers and payroll providers prepare for implementation.
Changes Take Effect
New rules apply. Only first £2,000 of salary sacrifice pension contributions exempt from NICs.
Frequently Asked Questions
Will I still get tax relief on my pension contributions?
Yes. Income Tax relief on pension contributions is not affected by these changes. You'll continue to receive tax relief at your marginal rate on all eligible pension contributions.
Is this per employer or per person?
The £2,000 threshold applies per tax year to your total salary sacrifice pension contributions. Further guidance from HMRC is expected to clarify how this works for those with multiple employments.
Does this affect employer pension contributions?
Employer contributions that are not part of a salary sacrifice arrangement are not affected. Only employee contributions made through salary sacrifice above £2,000 will be subject to NICs.
Should I stop contributing to my pension through salary sacrifice?
Not necessarily. Salary sacrifice still offers benefits: the first £2,000 remains NIC-free, and all contributions receive Income Tax relief. Speak to a financial adviser about your specific circumstances.
What about other salary sacrifice benefits?
These changes specifically target pension contributions. Other salary sacrifice benefits (cycle to work, electric vehicles, childcare vouchers where still available) are not affected by this announcement.
Calculate Your Take-Home Pay
Use our free UK tax calculator to understand how salary sacrifice and pension contributions affect your take-home pay today.
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The government has stated that additional guidance will be published on GOV.UK before the April 2029 implementation date. Bookmark this page and check back for updates.
Disclaimer: This guide is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial adviser for personalized guidance. Information based on GOV.UK guidance published 26 November 2025.