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Salary sacrifice and the 2025 Budget: the National Insurance cap from April 2029
From 6 April 2029 only the first £2,000 a year of employee pension contributions through salary sacrifice will escape National Insurance. The primary legislation is enacted; implementing regulations and payroll guidance are still to come.
Based on the National Insurance Contributions (Employer Pensions Contributions) Act 2026 and HMRC’s “Changes to salary sacrifice for pensions from April 2029” guidance.
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— In short
The National Insurance Contributions (Employer Pensions Contributions) Act 2026 enacts the salary-sacrifice change from 6 April 2029. The first £2,000 a year of employee pension contributions through salary sacrifice will stay free of National Insurance; amounts above it will attract employee and employer NI. Income-tax relief is unchanged, and genuine employer contributions outside salary sacrifice remain NIC-free. Regulations and HMRC payroll guidance must still supply the operating detail.
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From 6 April 2029 only the first £2,000 a year of employee pension contributions made through salary sacrifice will remain free of National Insurance. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026, so the framework, start year and first £2,000 limit are enacted. The change touches National Insurance only: income-tax relief on pension contributions is unchanged.
What the law now says
The first £2,000 of employee pension contributions made through salary sacrifice each tax year stays outside Class 1 National Insurance. Salary or bonus sacrificed above that limit is brought into employee and employer NI as employment earnings. Contributions can still exceed £2,000, and their income-tax treatment is unchanged. Genuine employer pension contributions made outside salary sacrifice also remain free of National Insurance.
National Insurance Contributions (Employer Pensions Contributions) Act 2026 c.15, s.1 ( legislation.gov.uk); Royal Assent 29 April 2026.
Who it affects
For most employees sacrificing modest amounts, a £2,000 NI-free allowance covers the whole contribution, so nothing changes. The measure bites on larger sacrifices — higher earners directing significant sums to a pension, and the employers who currently save 15% secondary National Insurance on those amounts. Even then, only the National Insurance advantage above the cap is lost. The income tax relief, and the effect on adjusted net income, remain.
What to do now
Nothing changes before 6 April 2029. The primary legislation is final, but secondary regulations must set out how the annual limit works across pay periods and HMRC still has to publish the payroll and reporting guidance. Existing arrangements should therefore be revisited against that operating detail before April 2029. Our salary sacrifice calculator models the current rules; we will update it when the operative payroll rules are final.
For how the saving works under today’s rules, see salary sacrifice for pensions, explained and salary sacrifice and National Insurance.
Common questions
- Is salary sacrifice being abolished?
- No. The 2026 Act keeps salary sacrifice but, from 6 April 2029, limits the amount of employee pension contributions through salary sacrifice that is free of National Insurance to £2,000 a year. Income-tax relief is unaffected.
- When do the salary sacrifice changes start?
- The enacted change starts on 6 April 2029. Until then the current rules apply — salary-sacrificed pension contributions remain free of employee and employer National Insurance without the new £2,000 cap.
- What is the £2,000 salary sacrifice cap?
- From 6 April 2029, the first £2,000 a year of employee pension contributions made through salary sacrifice stays free of National Insurance; salary or bonus sacrificed above it attracts employee and employer NI. The Act fixes that framework, while regulations and payroll guidance still need to provide the operating detail.
Sources & grounding
ENACTED PRIMARY LEGISLATION: National Insurance Contributions (Employer Pensions Contributions) Act 2026 c.15, Royal Assent 29 April 2026. Section 1(3) applies the amendments from tax year 2029-30 and s.1(4) requires the first regulations to set a £2,000 annual contributions limit. https://www.legislation.gov.uk/ukpga/2026/15/section/1/enacted
Primary sources:https://www.legislation.gov.uk/ukpga/2026/15/section/1/enacted
Current NI treatment (the baseline being changed): SSCBA 1992 s.8/s.9 — salary-sacrificed pension contributions are currently free of both employee and employer National Insurance without limit.
Primary sources:SSCBA 1992 s.8/s.9
The Income Tax position and NI relief for genuine employer pension contributions outside salary sacrifice remain unchanged. The regulations that implement the annual limit and HMRC payroll/reporting guidance remain outstanding (HMRC, “Changes to salary sacrifice for pensions from April 2029”).
For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.
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