Salary sacrifice is changing in 2029: what it means for your pay
A cap on the NI saving
From 6 April 2029, only the first £2,000 a year sacrificed into a pension escapes National Insurance. Anything above it is treated as earnings.
Income tax relief is untouched
Pension contributions still get full income tax relief, by sacrifice or any other route. This is a National Insurance change only.
Under the cap, nothing changes
Contributing £2,000 a year or less by sacrifice? Nothing to do. The government estimates the cap leaves roughly three quarters of basic-rate users unaffected.
The cost peaks, then falls
Employee National Insurance drops from 8% to 2% above £50,270, so the yearly cost is largest for people earning near that line, not for the highest earners.
Where it bites hardest
Sacrificing a whole bonus is the case that clears the cap by the most. A £10,000 bonus sacrifice on a £40,000 salary costs about £896 a year more.
They pay on the excess as well
Employer National Insurance applies to the same excess. Some employers share their saving with staff, so it is worth asking what they plan to do.
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Salary sacrifice is the arrangement where you give up part of your salary and your employer pays it into your pension instead. Because the money never counts as salary, it escapes both income tax and National Insurance, which is what makes it more efficient than paying into a pension from your take-home pay.
From 6 April 2029, one half of that stops being unlimited.
What is actually changing
Only the first £2,000 you sacrifice in a tax year will still escape National Insurance. Anything above that will be treated as earnings, and both you and your employer will pay National Insurance on it.
Three things it is worth being precise about, because early coverage of this change was not:
- Income tax relief is not affected. HMRC’s own note says the income tax relief on employee and employer pension contributions “remain unchanged”. Every pound still goes into your pension free of income tax. This is a National Insurance change and nothing else.
- You can still sacrifice as much as you like. There is no cap on what you contribute. The £2,000 is a cap on the National Insurance exemption, not on the arrangement.
- It starts in 2029, not now. You have until 6 April 2029 under the current rules.
What it costs, by income
The figures below assume you contribute 8% of salary by sacrifice, which is roughly the employee side of a typical workplace scheme. They use today’s National Insurance rates and thresholds: 8% between £12,570 and £50,270, 2% above that, and 15% for employers.
| Salary | Sacrificed | Above the cap | You pay | Per month | Your employer pays |
|---|---|---|---|---|---|
| £25,000 | £2,000 | £0 | £0 | £0 | £0 |
| £30,000 | £2,400 | £400 | £32 | £2.67 | £60 |
| £35,000 | £2,800 | £800 | £64 | £5.33 | £120 |
| £45,000 | £3,600 | £1,600 | £128 | £10.67 | £240 |
| £50,000 | £4,000 | £2,000 | £160 | £13.33 | £300 |
| £60,000 | £4,800 | £2,800 | £56 | £4.67 | £420 |
| £80,000 | £6,400 | £4,400 | £88 | £7.33 | £660 |
| £100,000 | £8,000 | £6,000 | £120 | £10.00 | £900 |
| £125,000 | £10,000 | £8,000 | £160 | £13.33 | £1,200 |
| £150,000 | £12,000 | £10,000 | £200 | £16.67 | £1,500 |
Read down the “You pay” column and you will notice it does not behave the way you would expect.
The counter-intuitive bit: the cost peaks near £50,000
Someone on £50,000 pays about £160 a year more. Someone on £60,000 pays about £56, a third as much, on a bigger salary and a bigger contribution.
That is not an error. Employee National Insurance is 8% between £12,570 and £50,270, and only 2% above £50,270. Once your pay after sacrifice sits above that line, the extra earnings created by the cap are taxed at 2% rather than 8%. So the yearly cost climbs with salary up to around £50,000, drops sharply just past it, then climbs slowly again as contributions grow.
If you earn somewhere in the £45,000 to £52,000 band and sacrifice a meaningful amount, you are in the part of the curve where this change costs the most relative to your pay. Not the part most people would guess.
Bonus sacrifice is where it bites
Sacrificing a whole bonus is the single most common way to clear the £2,000 cap by a long way. On top of a regular 8% contribution:
| Salary | Plus a £10,000 bonus sacrificed | You pay | Your employer pays |
|---|---|---|---|
| £40,000 | £13,200 total | £896 | £1,680 |
| £60,000 | £14,800 total | £560 | £1,920 |
| £90,000 | £17,200 total | £304 | £2,280 |
Same shape as before: the £40,000 earner pays the most, because far more of their sacrifice sits in the 8% band.
Your employer is affected more than you are
Look at the last column of both tables. In most rows the employer pays two to five times what the employee does, because employer National Insurance is 15% on the whole excess with no upper limit.
That matters to you for a practical reason. Many employers currently pass some or all of their National Insurance saving into your pension as a sweetener for using sacrifice. If that saving shrinks, some may reduce what they add. Nobody has to, and plenty will not, but it is a fair question to ask your payroll or HR team well before 2029 rather than discovering the answer in a payslip.
Is salary sacrifice still worth it?
On these figures, for most people, yes. You keep full income tax relief on everything, you keep the National Insurance saving on the first £2,000, and the extra cost above that is measured in tens of pounds a month at most for typical contributions. That is a smaller change than the headlines suggested.
What it does do is narrow the gap between salary sacrifice and ordinary pension contributions. If you chose sacrifice purely for the National Insurance and you contribute far more than £2,000, the arrangement is less compelling than it was, and it may be worth revisiting the comparison closer to the time.
Some things worth thinking about, none of which are recommendations:
- If you were planning a large one-off sacrifice (a bonus, a redundancy payment, a catch-up contribution), the rules are more generous before 6 April 2029 than after.
- Sacrifice can reduce more than tax. Lower salary on paper can affect mortgage affordability, statutory maternity or paternity pay, and some benefits. That was true before this change and remains true.
- Sacrifice cannot take you below the National Minimum Wage. Employers usually cap the arrangement for this reason.
- The annual allowance still applies to what goes in, separately from all of this.
What to do now
Nothing urgent. This starts in 2029, and the rates and thresholds above could have moved by then, so treat the figures as the shape of the change rather than a forecast of your 2029 payslip.
Two things are worth doing this year. Find out how much you actually sacrifice, which is on your payslip and is often more than people think once a bonus is included. And ask your employer whether they intend to change what they contribute, because that number is likely to matter more to your pension than your own National Insurance bill does.
Then look at the part that dwarfs both: how much you are putting in, and for how long. A few tens of pounds a month of National Insurance is a small figure next to the contribution rate itself.
Where to get free, impartial help
For free, impartial guidance, the government’s MoneyHelper service covers pensions and workplace benefits, and over-50s can book a free Pension Wise appointment to talk through taking money from a pension. Your employer’s payroll or HR team can tell you what you currently sacrifice and what they intend to do from 2029. For your own circumstances, speak to a qualified, regulated financial adviser.
Sources. HMRC, Salary sacrifice reform for pension contributions effective from 6 April 2029, and Changes to salary sacrifice for pensions from April 2029 (announced at Autumn Budget 2025). National Insurance rates and thresholds: gov.uk, National Insurance rates and categories, 2026/27.