In 30 seconds
- With salary sacrifice you give up part of your salary and your employer pays it into your pension, so neither of you pays National Insurance on it.
- From 6 April 2029, only the first £2,000 a year sacrificed into a pension stays free of National Insurance.
- You still get income tax relief on the whole amount.
- Someone sacrificing 5% of a £40,000 salary (£2,000) is not affected. Higher earners and big contributors are.
Key figures
NI rates for 2026/27. The cap starts in April 2029; rates may change before then.
How salary sacrifice saves you money today
With salary sacrifice, you agree to a lower salary and your employer pays the difference straight into your pension. Because your salary is lower:
- you pay less income tax, which is the same tax relief you would get from any pension contribution;
- you pay less National Insurance: 8% on pay between £12,570 and £50,270, and 2% above that;
- your employer pays less National Insurance too: 15% on pay above £5,000. Some employers add part or all of that saving to your pension.
The National Insurance saving is the extra benefit that ordinary pension contributions do not get. That is the part the government is capping.
What changes on 6 April 2029
From 6 April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Anything you sacrifice above £2,000 will have employee and employer National Insurance charged on it, as if it were still salary.
Three things do not change:
- You still get income tax relief on everything you put in, within the usual limits.
- Your employer can still run salary sacrifice above £2,000. It just stops saving National Insurance on the extra.
- Employer pension contributions that are not part of a sacrifice stay free of National Insurance.
The law is the National Insurance Contributions (Employer Pensions Contributions) Act 2026. The detail will be set out in regulations before 2029.
Worked examples
These use 2026/27 National Insurance rates. Rates and thresholds may change before 2029.
| £40,000, sacrifice 5% | £45,000, sacrifice 8% | £60,000, sacrifice 10% | |
|---|---|---|---|
| Amount sacrificed a year | £2,000 | £3,600 | £6,000 |
| Above the £2,000 cap | £0 | £1,600 | £4,000 |
| Your NI saving today | £160 | £288 | £120 |
| Your extra NI from April 2029 | £0 | £128 | £80 |
| Employer's extra NI from April 2029 | £0 | £240 | £600 |
Two things stand out.
First, the cap costs basic-rate earners more per pound than higher earners. At £45,000, the sacrificed pay above the cap would have saved 8% National Insurance. At £60,000, it would only have saved 2%, because pay above £50,270 only pays 2%.
Second, the bigger cost falls on employers. That is why the real risk for many people is not the extra £80 or £128, but whether their employer keeps passing on its own saving, or keeps the scheme at all.
HMRC estimates that about 7.7 million employees use salary sacrifice for pensions. Around 3.3 million sacrifice more than £2,000 a year and will be affected; around 4.3 million are fully protected. For those affected, the average extra employee National Insurance in 2029/30 is estimated at about £84.
Am I affected?
A quick test: multiply your salary by the percentage you sacrifice. If the answer is £2,000 or less, the cap does not affect you.
- 5% of a salary up to £40,000 stays under the cap.
- 10% of a salary over £20,000 goes over it.
- Sacrificing a bonus into your pension can take you over the cap on its own.
The detailed rules, including how the cap works if you have more than one job, will be set out in regulations before April 2029.
What you might do before 2029
- Nothing urgent. The cap does not start until April 2029, and salary sacrifice keeps its full benefit until then.
- Ask your employer whether it adds its National Insurance saving to your pension, and whether it plans to change the scheme.
- Keep contributing. Even above the cap, money going into a pension still gets income tax relief. The cap makes salary sacrifice less generous, not pointless.
- Check your tax relief. If you also pay into a personal pension, make sure you are claiming all the relief you are due. See pension tax relief explained.
Common questions
Will my employer stop offering salary sacrifice?
Some might change their schemes because their own National Insurance saving shrinks too. Salary sacrifice can continue above £2,000; the amount above the cap just pays National Insurance.
Does the cap reduce my tax relief?
No. Contributions through salary sacrifice still get income tax relief, within the usual limits. Only the National Insurance saving is capped.
Do employer contributions count towards the £2,000?
No. The cap is on pay you sacrifice. Employer pension contributions that are not part of a sacrifice stay free of National Insurance.
Sources
This guide is general information, not personal financial advice. Rules can change and your situation may differ. For free, impartial help, contact MoneyHelper, or speak to a regulated financial adviser.
