Salary sacrifice cap from 2029

Under the announced policy from 6 April 2029, pension contributions made through salary sacrifice will only be free of National Insurance on the first £2,000 a tax year. Above that, the amount sacrificed will be subject to employee and employer National Insurance under the applicable rules. Income tax relief on pension contributions remains, subject to the usual limits.

The enabling law is in place: the National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026. The detailed rules will be set by regulations, so payroll treatment should be checked against the final rules. On 23 March 2026 the House of Commons rejected House of Lords amendments to raise the cap to £5,000.

How salary sacrifice works now

With salary sacrifice, you agree to a lower contractual salary and your employer pays the difference into your pension. Under the current rules:

the contribution is not taxed as salary, and the usual pension tax limits still apply;
you pay no employee National Insurance on it;
your employer pays no employer National Insurance on it, and some employers pass part of that saving into your pension.

What changes in April 2029

The National Insurance exemption will cover the first £2,000 of sacrificed salary a tax year. This is a limit on the contribution amount receiving relief, not £2,000 of tax savings or a cap on total pension contributions. Sacrifice above £2,000 is treated as pay for National Insurance, so, using standard category A rates for illustration:

you pay employee National Insurance on the excess (8% on earnings between £12,570 and £50,270, 2% above, at 2026/27 rates);
your employer pays employer National Insurance on the excess (15% at 2026/27 rates).

Worked examples

	Earning £40,000, sacrificing £6,000	Earning £80,000, sacrificing £10,000
Sacrifice above £2,000	£4,000	£8,000
Extra employee NI each year	£320 (at 8%)	£160 (at 2%)
Extra employer NI each year	£600 (at 15%)	£1,200 (at 15%)
Income tax relief	Unchanged	Unchanged

Illustrative, not advice. Assumes standard category A National Insurance, the stated salary before sacrifice, no special employer reliefs and all of the excess falling within the stated contribution band. Uses 2026/27 rates; the rates and detailed payroll rules in 2029 may differ. In the £80,000 example, the sacrificed salary remains above the upper earnings limit, so the excess attracts 2% employee NI.

The employee cost depends on earnings and the amount sacrificed. Employers may also change the extra contributions they pass on from their National Insurance savings, or how their schemes work. Ordinary employer contributions that are not made in exchange for salary retain their National Insurance treatment under the announced policy.

What you might want to check before 2029

How much you sacrifice and whether your employer adds any of its National Insurance saving to your pension.
What your employer plans to do. Ask whether it intends to change its scheme before April 2029.
Other salary sacrifice benefits (such as electric cars or cycle to work) aren't affected by this pension cap.
Your take-home pay from April 2029 if you sacrifice more than £2,000.

FAQ

What is the salary sacrifice cap? Under the announced policy from 6 April 2029, only the first £2,000 a tax year of pension contributions made through salary sacrifice will be exempt from National Insurance. Detailed regulations are still to come.

Does the cap affect income tax relief on my pension? No. The announced change preserves income tax relief on pension contributions, subject to the usual limits.

Is the salary sacrifice cap confirmed? The enabling law is passed and an attempt to raise the cap to £5,000 was rejected, but the detailed regulations are still to come.

Will my employer stop salary sacrifice? Some employers may change their schemes. Ask your employer what it plans to do before April 2029.

Sources

General information, not a personal recommendation. Tax treatment and pension rights depend on the rules and individual circumstances.