From April 2029, the government will cap National Insurance (NI) relief on pension salary sacrifice at £2,000 per year.

Any contributions above that level will no longer be NI-free.

For higher contributors, that means reduced take-home pay benefits or a less efficient way to build retirement savings. For employers, it means rising payroll costs.

Salary sacrifice has long been considered one of the most tax-efficient ways to save into a workplace pension.

Here we go, salary sacrifice for pensions getting capped at £2,000. That’s going to make it harder for people to build pensions in their peak earnings (AKA their “panic!”) years. Not starting until 2029.

— John Stepek (@John_Stepek) November 26, 2025

But under changes confirmed in the 2025 Autumn Budget, that benefit shrinks significantly.

Chris Eastwood, CEO of Penfold, warned: “Salary sacrifice has been a win-win for employers and employees for years – lowering National Insurance costs while strengthening retirement savings.”

Under the new rules:

Only the first £2,000 of pension contributions via salary sacrifice will remain NI-free

Contributions above that will attract both employee and employer NI

Income tax relief remains unchanged

3.3 million workers could lose out

According to HM Revenue and Customs, around 7.7 million employees use salary sacrifice for pensions.

Of those, 3.3 million contribute more than £2,000 annually — and are likely to feel the impact directly.

Eastwood said: “Anyone contributing more than £2,000 a year through salary sacrifice will lose NI savings on the excess, and employers will see their NI costs rise accordingly.”

For someone contributing £5,000 annually, NI savings on £3,000 would disappear after 2029.

Over years of saving, that reduction compounds.

Employers told to act now

The warning isn’t just for workers.

Employers will face higher NI bills on pension contributions above the cap and may need to overhaul payroll systems and contribution structures well ahead of implementation.

Eastwood added: “Businesses need to start modelling the financial impact now and ensure they communicate clearly with staff well ahead of implementation.”

The three-year window

While April 2029 may seem distant, experts say delay could be costly.

Eastwood stressed: “Businesses do still have a three-year window before the changes take effect.

“For employers not yet using salary sacrifice, there remains a significant opportunity to capture NI savings before 2029.”

That window allows companies and employees to:

Maximise NI efficiencies under current rules

Review contribution strategies

Adjust long-term pension planning

Salary sacrifice has been one of the most efficient pension tools available for over a decade.

Recommended reading:

From 2029, it still works — but not in the same way.

Higher earners, those making additional voluntary contributions, and employers offering enhanced schemes are most exposed.

The reform represents one of the biggest shifts in workplace pension tax treatment in years.

And once the cap arrives, the full NI advantage disappears above £2,000.