Changes to salary sacrifice for pensions from April 2029
Published 26 November 2025
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The government is changing how salary sacrifice for pension contributions works. 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.
Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.
1. What’s happening
From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).
Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.
2. What this means for employers
From April 2029, salary sacrifice arrangements for pensions can continue and the first £2,000 of contributions per employee will be exempt from NICs.
Employers will need to report the total amount sacrificed through their existing payroll software. HMRC will engage with stakeholders on this and publish further guidance on this.
All employer pension contributions will continue to be free of NICs.
3. What this means for employees
Employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice. Most employees making typical contributions will not be affected.
Employees can still contribute as much as they want to their pensions, including via salary sacrifice, and these contributions will still be exempt from Income Tax (subject to the usual limits).
Employees who choose to sacrifice salary to receive Tax Free Childcare or Child Benefit can keep doing so. However, any pension contributions above £2,000 will be subject to employer and employee NICs.
Employees will not need to contact HMRC. Employers will make the necessary changes so that NICs apply to contributions above £2,000.
4. Why this is changing
This change limits the benefit of salary sacrifice arrangements, which have grown significantly in recent years. The costs of relief through salary sacrifice relate disproportionately to pension contributions from those on higher incomes. It makes the system fairer and more sustainable, and means that any salary sacrificed above the £2,000 cap is treated the same for tax purposes as other pension scheme arrangements.
Most employees making typical pension contributions and their employers will be unaffected.
5. Next steps
Further guidance will be published on GOV.UK before April 2029.