The amount workers can pay into a pension free of national insurance is to be limited under the chancellor’s cap on salary sacrifice schemes.

In her second budget Rachel Reeves said that from April 2029 workers will only be able to pay up to £2,000 a year into their pension via salary sacrifice without paying national insurance on that contribution. Any pension payments above that amount will incur national insurance contributions of 8 per cent on income between £12,571 and £50,270 a year and 2 per cent on income above that.

It means that millions of workers could see their take-home pay fall as their national insurance payments increase. But with the changes not happening for more than three years, there’s still time to make the most of salary sacrifice while you can.

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Lisa Picardo from the pensions consolidation firm PensionBee said: “Workers have a valuable window. Anyone who can afford to may want to increase or max out their salary sacrifice contributions this tax year, then scale back once the cap comes in.”

Here’s what you need to know.

How much extra to put in

Most pension savers can put a maximum of £60,000 (or up to 100 per cent of their earnings, whichever is lower) into their pot each tax year and get tax relief on those contributions. All pension contributions get income tax relief, either at source or claimed back through a self assessment tax return, but pension payments made through salary sacrifice also completely avoid national insurance — at the moment. Salary sacrifice involves giving up part of your gross salary, before tax or national insurance payments are taken, to go into your pension.

If you get a bonus on top of your salary, then paying that into your pension via salary sacrifice is an “easy win” according to Picardo, especially if the bonus would otherwise tip you into a higher tax bracket.

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“It would mean you keep far more of the money while giving your future self a meaningful boost,” Picardo said. “Even a one-off bonus redirected now can grow substantially over the long term.”

She advised anyone paying into a pension pot to check whether their employer uses salary sacrifice.

“If it is available, acting before April 2029 will ensure that you take full advantage of the existing tax and national insurance savings for the next few tax years,” she said.

Nicholas Nesbitt from the wealth manager Forvis Mazars said: “Come 2029, this will disproportionately hit those earning less than £50,270 a year because they will be paying 8 per cent national insurance on money that they are trying to save for their future. Higher earners will be paying 2 per cent national insurance.”

Businesses also make savings from salary sacrifice because they don’t have to pay employers national insurance on the salary that employees sacrifice.

“Many companies pass on the employer national insurance contributions they save through salary sacrifice as further contributions for their employees, so removing this saving could harm workers’ pensions further.

“But a lot can change in three and a half years. While workers should plan for the changes, the landscape may be different by April 2029.”

Les Cameron from the wealth manager M&G said many workers won’t be able to afford to make greater use of salary sacrifice before the changes. “Many employees may not have the financial flexibility to increase contributions significantly, but those who can may wish to, especially if they are planning to retire in the short term.”

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How much you could lose

The Times calculator shows that someone earning £50,000 a year who was contributing 5 per cent of their salary to a pension through salary sacrifice would lose out on £1,964 over ten years because of the cap.

Increasing the amount they pay into their pot over the 28 months until April 2029 by £70 a month (including tax relief) would offset the loss.

A worker earning £75,000 would lose £4,807 over ten years. They would need to pay £172 a month extra including tax relief to offset the loss.

Jon Greer from the wealth manager Quilter said: “We’re already sleepwalking into a retirement crisis. What the smorgasbord approach fails to recognise is that small tweaks can have huge behavioural impacts — and this one could harm millions of future retirements.”