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Government introduces £2,000 NICs cap from 2029
The government has announced a significant reform to salary sacrifice arrangements for pension contributions.
As confirmed at the Autumn Budget 2025, from April 2029 the level of employee pension contributions made through salary sacrifice that is exempt from national insurance contributions (NICs) will be capped at £2,000 per year.
Salary sacrifice allows employees to give up part of their salary or bonus in exchange for an equivalent employer pension contribution, reducing NICs liabilities for both employee and employer.
Under the reformed system, salary sacrifice arrangements can continue, but only the first £2,000 per employee each year will be exempt from both employer and employee NICs. Any employee pension contributions made via salary sacrifice above this limit will attract NICs in the same way as other forms of remuneration.
Importantly, all employer pension contributions will remain fully exempt from NICs, ensuring that the majority of standard employer-funded pension contributions continue unaffected.
Employees will still be able to contribute as much as they wish to their pensions, including via salary sacrifice, and all pension contributions will continue to receive full income tax relief, subject to the usual annual allowance rules. The government confirmed that employees who use salary sacrifice to access tax-free childcare or child benefit can continue to do so, but any pension contributions above the £2,000 cap will now be subject to NICs.
Most employees making typical pension contributions will not reach the £2,000 threshold and therefore will see no change in their NICs position. The reforms will mainly affect higher earners who sacrifice larger portions of their salary or bonus payments into their pensions.
Employers will need to update payroll systems to report the total amount of salary sacrificed for pension contributions. HMRC will engage with stakeholders and publish detailed guidance ahead of the April 2029 implementation date. No action is required from employees, as employers will apply the changes automatically.
Full guidance will be published on GOV.UK before the new rules take effect.