Changes to pension salary sacrifice – but only from 2029

In the Budget on 26 November, the chancellor, Rachel Reeves, announced a cap on the amount of National Insurance (NI) savings that can be made when people pay their pension contributions using salary sacrifice. 

Many companies offer pension salary sacrifice as a way of reducing the cost of saving into a pension scheme, but from April 2029 these NI savings will be limited to the first £2,000 of pension contributions. Salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions and therefore subject to both employee and employer NI. 

However, tax relief on pension contributions is unchanged, so paying into a pension remains a tax-efficient way of saving for retirement. 

Example
Someone earning £40,000 a year who uses salary sacrifice to pay a 5% pension contribution would be at the £2,000 limit. If they received a pay rise or increased their contribution rate, they would start paying NI on a portion of their contribution.