Salary sacrifice has been the quiet winner of pension saving for years. You give up some salary, your employer pays it into your pension, and you skip income tax and National Insurance on it. From April 2029, part of that deal ends.
If you sacrifice more than £2,000 a year, you and your employer will pay National Insurance on the rest. This news guide explains the change, and our salary sacrifice pension calculator workings show what it costs at four salary levels.
The good news: for most savers, salary sacrifice is still worth having.
What is changing with salary sacrifice in 2029?
From 6 April 2029, the amount you can sacrifice into a pension free of National Insurance will be capped at £2,000 a year. Anything above that will be treated as earnings for National Insurance, for both you and your employer.
"From April 2029, the amount that is exempt from National Insurance contributions (NICs) will be capped at £2,000 a year for employee contributions made via salary sacrifice."
HM Revenue and Customs, Changes to salary sacrifice for pensions, November 2025
The change was announced at the Budget on 26 November 2025. The law to bring it in, the National Insurance Contributions (Employer Pensions Contributions) Act 2026, received Royal Assent on 29 April 2026.
What is not changing?
Three things stay exactly as they are:
- Income tax relief. Your pension contributions still get relief at your top rate of income tax.
- Ordinary employer contributions. Money your employer pays on top of your salary, not in exchange for it, stays free of National Insurance.
- Your annual allowance. The £60,000 limit, the taper for very high earners and carry forward pension rules are untouched.
So this is a National Insurance change, not a pension tax relief change.
Who pays more?
HMRC's impact note gives the scale:
- about 7.7 million employees use salary sacrifice for pensions
- 56% are fully protected by the £2,000 limit
- about 3.3 million (44%) will pay more
- their average extra National Insurance is about £84 in 2029/30
The Treasury expects the change to raise around £4.8 billion in 2029/30. Most of that comes from employers, who pay 15% on everything above the cap.
What does the cap cost you? Our salary sacrifice pension calculator workings
Here is what changes at four salary levels, using today's 2026/27 National Insurance rates (8% between £12,570 and £50,270, 2% above, and 15% for employers):
| Salary | Yearly sacrifice | Above the £2,000 cap | Extra employee NI a year | Extra employer NI a year |
|---|---|---|---|---|
| £30,000 | £1,500 | £0 | £0 | £0 |
| £45,000 | £5,000 | £3,000 | £240 | £450 |
| £80,000 | £10,000 | £8,000 | £160 | £1,200 |
| £120,000 | £20,000 | £18,000 | £360 | £2,700 |
Table: Plenence workings using 2026/27 rates from our employee and employer National Insurance rule pages. Rates in 2029 may differ.
Two things jump out. Basic rate taxpayers lose more per pound, because their National Insurance rate is 8% rather than 2%. And employers lose the most, which is where the real risk lies.
Why the employer cost matters to you
Many employers share their National Insurance saving with staff, by adding some or all of it to your pension. Once that saving shrinks, some may stop. That could cut your pension by more than your own extra National Insurance.
Check your scheme booklet or ask HR: does my employer add its National Insurance saving to my pension, and will that change in 2029?
How much should I contribute to my pension after 2029?
The cap does not change the basic order of priorities:
- Take the full employer match first. Free money beats any tax rule.
- Keep using salary sacrifice for at least £2,000. That slice keeps its full saving.
- Above £2,000, compare options. Sacrifice still saves income tax and keeps your take-home pay calculation simple. A personal pension with relief at source gets the same income tax relief.
Our pension tax relief guide explains how each method gets relief, and how higher earners claim the extra.
Salary sacrifice vs relief at source after 2029
Above the £2,000 cap, salary sacrifice and a normal personal pension end up close for you as an employee.
Take a basic rate taxpayer putting another £1,000 into a pension above the cap:
- Salary sacrifice: salary falls by £1,000, saving £200 income tax. National Insurance is now charged on it anyway. Cost to take-home pay: £800.
- Relief at source: you pay £800 from take-home pay and the provider adds £200. Cost: £800.
Both put £1,000 in the pension for £800. The difference is on your employer's side, and in any extras your scheme offers. So a salary sacrifice pension calculator built for 2029 needs two answers: what you pay and what your employer pays.
A worked example
This is an illustrative example, not a real person.
Hannah earns £45,000 and sacrifices £5,000 a year. Her employer adds its 15% National Insurance saving to her pension, worth £750.
From April 2029, at today's rates:
- Hannah pays £240 more National Insurance on the £3,000 above the cap.
- Her employer pays £450 more, and decides to stop passing on its saving.
- Her pension loses that £750 top-up.
Hannah's total hit is about £990 a year, four times the £240 that shows on her payslip. That is why it is worth asking your employer now, not in 2029.
Common mistakes with the salary sacrifice change
- Stopping salary sacrifice altogether. The first £2,000 still saves National Insurance, and income tax relief is unchanged.
- Assuming it starts now. It starts on 6 April 2029. Nothing changes in the 2026/27 or 2027/28 tax years.
- Forgetting bonus sacrifice. Sacrificed bonuses count towards the £2,000 too.
- Ignoring the employer side. Your employer's response may matter more than your own National Insurance.
- Cutting saving to protect take-home pay. A small National Insurance rise is rarely a reason to save less for retirement.
Check your own numbers
Our salary sacrifice pension calculator shows today's saving for your salary and contribution, using the current rules. Our pension tax relief calculator shows the income tax side.
Plenence flags tax relief headroom and salary sacrifice savings in its decision list, with the rule and its source. When a rule in its dataset changes, Plenence Pro re-checks your plan and tells you what the change means for you, in pounds.