Salary sacrifice pension cap from 2029: what employers must do

From 6 April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Anything sacrificed above that attracts employee and employer NICs at the normal rates, although income tax relief is unchanged. The law is in place, the regulations and HMRC guidance are not, so employers have time to plan but should start now.

What is changing in April 2029?

The National Insurance exemption for salary-sacrificed pension contributions is capped at £2,000 per employee per year from 6 April 2029. HM Treasury’s guidance, published on 26 November 2025, sets out the policy:

• the first £2,000 sacrificed each year stays free of employee and employer NICs
• amounts above £2,000 are treated like ordinary employee pension contributions, so NICs apply
• all pension contributions stay free of income tax, subject to the usual limits
• employer pension contributions outside salary sacrifice stay free of NICs
• salary sacrifice for other benefits, and for reasons such as keeping Child Benefit or Tax-Free Childcare, can continue

The government says most employees making typical contributions will not be affected. £2,000 a year is about £167 a month.

Is the cap law yet?

Yes. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026. It has three sections, covering Great Britain, Northern Ireland, and commencement.

The House of Lords tried to raise the cap to £5,000 and to exclude basic rate taxpayers. The Commons overturned those amendments, Pensions Age reported. We found no change to the cap in the Budget 2026 overview of tax legislation published on 28 October 2026.

What is not yet known

The Act leaves most of the operational detail to regulations and HMRC guidance, which the government says will be published before April 2029. These points are still open:

• how the cap applies to someone with two or more employments
• how employers should treat bonus sacrifice paid late in the tax year
• the exact payroll reporting fields and RTI changes
• how in-year changes to sacrifice amounts are tracked against the £2,000 limit

Do not build a final process until HMRC publishes. Plan with the policy as it stands.

How much will it cost?

The extra cost depends on how much each employee sacrifices above £2,000. The examples below use 2026-27 rates. Budget 2026 keeps most NICs thresholds at 2026-27 levels until 2030-31, but the rates for 2029-30 are not yet set.

The employer pays 15% on the excess. The employee pays 8% where the excess falls below the upper earnings limit of £967 a week, and 2% above it. Test your own figures with the salary sacrifice calculator.

Which applies to your scheme?

• If no employee sacrifices more than £2,000 a year, nothing changes, but you still need payroll software that reports sacrificed amounts.
• If some employees sacrifice more, you face extra employer NICs on the excess from 2029-30 and need to decide who bears the cost.
• If you use bonus sacrifice, expect the largest exposure, because one bonus can exceed the cap.
• If you pass employer NIC savings into pensions, that top-up shrinks for amounts above £2,000.

What should employers do now?

1. Run a census of current sacrifice. List each employee’s annual sacrifice and flag anyone above £2,000, including bonus sacrifice.
2. Model the cost. Multiply the excess by 15% for employer NICs. Use the employer NI calculator for full payroll costs.
3. Review scheme design. Options include changing the split between employee and employer contributions. Take advice before changing contracts.
4. Check payroll software. Ask your provider when it will support reporting of sacrificed amounts for 2029-30.
5. Plan communications. Affected employees will see less take-home pay. Our guide to salary sacrifice explains the current savings.
6. Keep auto-enrolment compliant. Any redesign must still meet minimum contributions. See pension auto-enrolment and the review covered in auto-enrolment at 12%.

The ACCA’s summary confirms that employees need take no action.

Frequently asked questions

When does the salary sacrifice pension cap start?

6 April 2029, the start of the 2029-30 tax year. It was announced at Budget 2025 and became law on 29 April 2026.

Can employees still sacrifice more than £2,000?

Yes. Employees can sacrifice as much as they like. Only the National Insurance relief is capped; amounts above £2,000 attract NICs.

Does the cap affect income tax relief on pensions?

No. Salary-sacrificed contributions stay free of income tax, subject to the usual annual allowance.

Do employer pension contributions count towards the £2,000?

Ordinary employer contributions do not count and stay free of NICs. The cap applies to employee contributions made through salary sacrifice.

Did Budget 2026 change the cap?

We found no change. The Budget 2026 overview of tax legislation, published on 28 October 2026, does not alter the £2,000 cap or the April 2029 start date.

How does the cap work for people with two jobs?

This is not yet known. The government has said further guidance and regulations will follow before April 2029.