Salary sacrifice: pension and car
The salary sacrifice cap from April 2029: what £2,000 means for your pension
HM Treasury and HMRC have announced that from 6 April 2029 only the first £2,000 a year of pension contributions made by salary sacrifice will be free of National Insurance. Income Tax relief stays.
Independent site, not a government service. Relief is claimed through your pension provider, your payroll or HMRC (Self Assessment or the GOV.UK claim service).
From April 2029, according to the policy paper published on 26 November 2025 (HM Treasury and HMRC, changes to salary sacrifice for pensions), the amount of pension salary sacrifice that is exempt from National Insurance will be capped at £2,000 a year per employee. Contributions above the cap will carry employee and employer NI as if they had been paid as salary and then contributed by the employee. Income Tax relief does not change, employer contributions that are not sacrificed stay free of NI, and sacrifice for other benefits is not covered. For someone on £60,000 who sacrifices £6,000 a year, the employee NI saving falls from £120 to £40 and the employer's from £900 to £300. The paper says most employees making typical contributions will not be affected. The people who lose most are basic rate earners with large sacrifices, because they save 8% NI today, and employers who pass their 15% saving into staff pensions.
Salary sacrifice before and after April 2029
Example, not your result yet· change a figure to see yours
Extra cost a year from April 2029
£80
| Your NI saved now | £120 |
| Your NI saved from April 2029 | £40 |
| Employer NI saved now | £900 |
| Employer NI saved from April 2029 | £300 |
Figures checked by Radif Partners · Editorial policy · How the sums are done
The extra cost to you, by salary and sacrifice
| Salary | Sacrifice £2,000 | Sacrifice £5,000 | Sacrifice £10,000 |
|---|---|---|---|
| £30,000 | £0 | £240 | £640 |
| £45,000 | £0 | £240 | £640 |
| £60,000 | £0 | £60 | £176 |
| £80,000 | £0 | £60 | £160 |
| £120,000 | £0 | £60 | £160 |
A sacrifice of £2,000 or less is untouched, whatever the salary. Above it, the loss is 8% of the excess for salaries up to £50,270 and 2% above, which is why a basic rate employee with a large sacrifice loses more in pounds than a higher earner with the same sacrifice. The thresholds of 2029/30 are not known yet; the table uses today's.
The cost to employers
| Salary | Employer NI saved now | From April 2029 | Lost saving |
|---|---|---|---|
| £30,000 | £750 | £300 | £450 |
| £45,000 | £750 | £300 | £450 |
| £60,000 | £750 | £300 | £450 |
| £80,000 | £750 | £300 | £450 |
| £120,000 | £750 | £300 | £450 |
Employers lose 15% of each sacrificed pound above £2,000. Many of them pass part of that saving to staff as an extra pension contribution. When the saving goes, that top-up is likely to be reviewed, which can matter more to the employee than the employee NI itself.
What stays the same
- Income Tax relief on all pension contributions, including sacrificed ones, within the annual allowance and the earnings limit.
- Employer contributions paid on top of salary, which stay free of NI.
- Salary sacrifice for other benefits, such as cars, which follow the benefit in kind rules (HMRC, salary sacrifice).
- The use of sacrifice to bring adjusted net income under £100,000 or £60,000: the paper confirms that employees who sacrifice to keep Tax-Free Childcare or Child Benefit can go on doing so, with NI above the cap.
What to do before April 2029
Nothing changes until then, so the NI saving on a large sacrifice is available in full for 2026/27, 2027/28 and 2028/29. Someone planning a large one-off contribution, for example a bonus sacrifice, keeps the full NI saving if it is made before 6 April 2029. After that date, compare sacrifice with net pay or relief at source: the salary sacrifice calculator shows both, and the guide to the three methods explains the differences. Employers will report the amount sacrificed through payroll software, and HMRC has said further guidance will follow.
Who is hit hardest
Three groups stand out in the arithmetic. Basic rate employees with big sacrifices, such as a nurse on £45,000 putting £5,000 a year into a workplace scheme by sacrifice, lose 8% on £3,000: £240 a year. Employees whose employer passes on its NI saving lose that top-up on everything above £2,000. And Scottish taxpayers between £43,663 and £50,270, who pay 42% tax and 8% NI on that slice, lose the most valuable part of their relief. Higher earners lose less in proportion, because their NI rate above the upper limit is 2%, although the absolute sums can still be large for big sacrifices.
The Budget of 28 October 2026 (HM Treasury, Budget 2026) refers to the measure as capping the amount of pension contributions that can be salary sacrificed. Rates of NI and the thresholds that will apply in 2029/30 have not been set, so the figures above use 2026/27 values. For a family between £60,000 and £80,000, the Child Benefit guide shows why the cap changes little, and the £80,000 page shows its effect on a larger contribution.
How payroll may apply the cap
The policy paper says employers will report the total amount sacrificed through their payroll software and that HMRC will publish more detail. Payroll works period by period, while the cap is a yearly figure, so employers will need a method, for example spreading £2,000 across the year or exempting the first sacrifices until the cap is used. Someone with two jobs and a sacrifice in each may find that the rules on how the cap is shared have not been set. Until the guidance appears, the calculators on this site apply the cap to the year as a whole.
Options for employees
- Keep the sacrifice: the Income Tax relief is unchanged, and the first £2,000 is still free of NI.
- Switch the excess to net pay, if the employer offers it. The cost is the same as sacrifice above the cap, but the contract keeps the higher salary, which can help with a mortgage or other benefits that follow salary.
- Pay the excess into a SIPP by relief at source, and claim any higher rate relief.
- Bring planned large sacrifices forward to 2027/28 or 2028/29, while the full NI saving lasts, within the annual allowance.
Options for employers
An employer that passes on its NI saving will lose it above the cap and may reduce or remove the top-up. Some may move their pension scheme back to ordinary employer contributions, which remain free of NI with no cap. An employer contribution that is not a sacrifice, for example a higher matching rate paid on top of salary, keeps its NI exemption, and some employers may redesign their schemes that way. The employer's own 15% saving on the first £2,000 per employee remains.
Two examples
A pharmacist on £52,000 sacrifices £4,000. From April 2029 she pays NI on the £2,000 above the cap: £160 a year, because the NI-free £2,000 is the top slice of her pay and the rest sits below the £50,270 upper limit, at 8%. A warehouse supervisor on £38,000 who sacrifices £6,000 pays 8% on £4,000, £320 a year, roughly the same loss in pounds as a manager on £150,000 sacrificing £18,000 at 2%.
What the cap does not touch
Three features of today's system survive. First, adjusted net income: salary given up still comes off your income for the Personal Allowance taper, the Child Benefit charge and Tax-Free Childcare, so the strongest reasons for sacrifice at £60,000 to £80,000 and around £100,000 remain. Second, the annual allowance: sacrificed contributions are employer contributions for the allowance, as now. Third, the State Pension: as long as cash pay stays above the lower earnings limit of £6,708, the qualifying year is kept. The cap only changes how much NI is paid, by whom and on what.
Reading the numbers on this site
Every figure for April 2029 on these pages applies the £2,000 cap to a whole year and uses the NI rates and thresholds of 2026/27, because those of 2029/30 are not known. If thresholds rise with inflation before then, the losses shown are a little too high for salaries near the upper earnings limit; if rates change, they shift accordingly. The calculators will be updated when HMRC publishes the detailed rules.
For the full picture of your own sacrifice, run the calculator above with your salary and amount, then the full salary sacrifice calculator with the April 2029 setting and any employer NI that is passed on to you.