Changes to Salary Sacrifice Pensions from 2029

Changes announced in the Autumn Budget 2025 will alter the National Insurance advantages of salary sacrifice pension arrangements from 6 April 2029.

What is a salary sacrifice pension contribution?

Salary sacrifice allows employees to exchange part of their salary for an employer pension contribution. This reduces National Insurance liabilities for both parties, with many employers using their savings to enhance pension contributions or invest in other employee benefits.

What is changing?

Under the new rules, only the first £2,000 of employee pension contributions made through salary sacrifice each tax year will remain exempt from employee and employer National Insurance contributions. Pension contributions will continue to benefit from Income Tax relief, but the National Insurance savings for both employers and employees will be significantly reduced once the annual cap is reached.

Several industry reports suggest that many employers are considering whether salary sacrifice pension schemes will remain worthwhile once the new National Insurance cap comes into effect.

What does this mean?

For employees, the changes could mean lower National Insurance savings meaning a reduction in take-home pay compared with current salary sacrifice arrangements. Employers would also face increased National Insurance costs, potentially affecting payroll budgets and wider remuneration strategies.

What next?

Although the changes do not take effect until April 2029, now is a good time for employers to understand what is changing and begin considering how the reforms may affect their business. Reviewing existing salary sacrifice arrangements and planning ahead will help ensure a smooth transition when the new rules are introduced.