Salary Sacrifice Pension Changes from April 2029: What UK Employers Need to Know

For more than a decade, salary sacrifice has been one of the most tax-efficient ways for UK employers to fund pension contributions. At the Autumn Budget 2025, the government announced the first significant change to that arrangement. From 6 April 2029, there will be a cap on how much can be sacrificed into a pension before National Insurance applies. If you offer pension salary sacrifice, here is what is changing, who it affects, and what to do about it.

What is changing on 6 April 2029?

From 6 April 2029, the first £2,000 of pension contributions made through salary sacrifice each year will continue to be free of National Insurance for both the employee and the employer. Anything sacrificed above £2,000 a year will be treated like an ordinary pension contribution, which means it attracts both employee National Insurance (8% on earnings within the main band, 2% above it) and employer National Insurance (15%, plus the Apprenticeship Levy for employers who pay it).

Importantly, this is a National Insurance change only. Income tax relief on pension contributions is not affected, so the income tax advantage of paying into a pension remains exactly as it is today, whatever method you use.

Who is actually affected?

For a large share of employees, the cap will make little or no difference. Someone earning £40,000 and contributing 5% through salary sacrifice is sacrificing around £2,000 a year, so they sit close to the threshold and see little change. The people who feel it are middle and higher earners, and anyone contributing a larger percentage of their salary, because their annual sacrifice runs well above £2,000.

Take a higher earner sacrificing £8,000 a year into their pension. Today the whole £8,000 is free of National Insurance. From April 2029, the first £2,000 stays free, but the remaining £6,000 attracts both employee and employer National Insurance. The employer picks up 15% on that £6,000, and the employee loses the National Insurance saving they used to enjoy on it. The income tax relief on the full £8,000 is unchanged.

What it means for employers

The first thing to say is that there is no need to panic or to unwind salary sacrifice arrangements now. The change is nearly three years away, and for most employees on average salaries with statutory minimum contributions, the cap has limited effect. Salary sacrifice into a pension remains worthwhile for the vast majority of your workforce.

Where it pays to plan is your population of higher earners and high contributors. These are the cases where the numbers shift, both for the employee's take-home pay and for your employer National Insurance bill. Modelling that exposure ahead of time, rather than discovering it in April 2029, is the sensible approach. Our salary sacrifice calculator shows the savings on any salary and contribution level so you can see where your people sit relative to the £2,000 threshold.

What about electric cars, cycle to work and other schemes?

The £2,000 cap applies to pension contributions only. Every other salary sacrifice scheme is untouched. Electric car salary sacrifice, cycle to work, workplace nurseries and the rest keep their full tax and National Insurance advantage. If anything, the relative appeal of those schemes increases for higher earners after 2029. You can see how each scheme compares in our guide to salary sacrifice schemes compared, and model an electric car specifically with the electric car salary sacrifice calculator.

What should you do now?

There are four practical steps worth taking well before April 2029. First, model the impact on your higher earners so you understand the scale of the change for both them and the business. Second, decide how you will communicate it, because employees who currently rely on the saving will want clear, early information. Third, review your wider benefits mix, since uncapped schemes become relatively more attractive for affected employees. And fourth, keep offering pension salary sacrifice, because it remains one of the most tax-efficient benefits available, particularly for the first £2,000 and for the income tax relief that continues regardless. If you are setting up or reviewing a scheme, our guide to how salary sacrifice works and the pension auto-enrolment guide cover the essentials.