Quick answer
From 6 April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice stays free of National Insurance. Anything you sacrifice above that is treated as earnings for National Insurance, so you and your employer both pay NI on the excess. Income Tax relief is untouched, and you can still pay in as much as you like.
For most people the personal cost is small. On 2026/27 National Insurance rates, someone earning £50,000 who sacrifices 10% of salary would pay about £240 a year more in employee National Insurance, while their employer would pay about £450 more. HMRC estimates the average extra employee bill at £84 in the first year. To see your own position, put your salary and contribution into the MySums Salary Sacrifice Calculator.
Figures below use 2026/27 National Insurance rates and thresholds and apply across the whole UK, since National Insurance is not devolved.
What actually changes on 6 April 2029
Today, when you sacrifice salary for an employer pension contribution, that money never counts as earnings. It escapes Income Tax, employee National Insurance and employer National Insurance. That triple saving is what makes salary sacrifice better than paying into the same pension any other way.
From 6 April 2029, one leg of that is capped. HMRC's policy paper sets out the mechanism: the measure removes the Optional Remuneration Arrangements exclusion for employer pension contributions, but for Class 1 National Insurance only, and only where the sacrifice exceeds a £2,000 contribution limit for the tax year. Above that limit, the amount sacrificed is treated as earnings and attracts Class 1 primary National Insurance for you and Class 1 secondary National Insurance for your employer (HMRC, Salary sacrifice reform for pension contributions, published 4 December 2025).
Four things do not change, and they matter:
- Income Tax relief. Your whole contribution still escapes Income Tax, whatever the amount, subject to the usual annual allowance.
- How much you can pay in. The £2,000 figure is a National Insurance threshold, not a contribution limit. HM Treasury says plainly that sacrificing more than £2,000 remains open to both sides of the arrangement (HM Treasury guidance, 26 November 2025).
- Ordinary employer contributions. Anything your employer pays in that is not funded by sacrificed salary stays completely free of National Insurance.
- Your adjusted net income. Salary sacrifice still reduces it, which is what keeps Tax-Free Childcare and the High Income Child Benefit Charge within reach.
The legal footing is already in place. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026, and section 1(4) requires the first regulations to set the contributions limit at £2,000 for a tax year, with the change taking effect for 2029/30 onwards (legislation.gov.uk).
Are you above the £2,000 line? Check your payslip first
Two conditions have to be true before any of this touches you. You need to be in a salary sacrifice arrangement, and your own sacrificed contributions need to exceed £2,000 in the tax year.
Plenty of people are in a salary sacrifice scheme without knowing it. The giveaway is the payslip: under salary sacrifice there is usually no employee pension deduction at all, because your gross pay has already been reduced. Instead you see a single employer contribution, sometimes labelled "salary exchange" or "SMART pension". If you can see a separate employee pension deduction coming out of your pay, you are probably on a net pay or relief at source arrangement, and the cap does not apply to you. Our guide to salary sacrifice explained walks through the differences.
Then do the arithmetic. If you sacrifice a percentage, multiply it by your gross salary. The break-even salary is the one where your percentage comes to exactly £2,000:
| If you sacrifice | You cross £2,000 at a salary of |
|---|---|
| 4% | £50,000 |
| 5% | £40,000 |
| 8% | £25,000 |
| 10% | £20,000 |
Bonus sacrifice counts too, and it catches people out. A modest regular contribution plus one sacrificed bonus can push you well past the limit in a single year.
Government estimates put roughly 7.7 million employees in salary sacrifice pension arrangements, of whom about 3.3 million sacrifice more than £2,000. That leaves around 4.3 million, or 56%, fully protected by the threshold.
What the cap actually costs you
The arithmetic is simpler than it looks. Work out how much you sacrifice above £2,000. That excess is added back to your National Insurance pay. You pay employee National Insurance on it at whichever rate applies to that slice of your earnings, and your employer pays 15% on it.
The rates that matter, for 2026/27: employees pay 8% on earnings between £12,570 and £50,270, then 2% above £50,270. Employers pay 15% on everything above £5,000 (HMRC rates and thresholds for employers 2026 to 2027).
Sacrificing 5% of salary
| Salary | Sacrificed | Above the cap | Extra employee NI | Extra employer NI |
|---|---|---|---|---|
| £35,000 | £1,750 | £0 | £0 | £0 |
| £50,000 | £2,500 | £500 | £40 | £75 |
| £60,000 | £3,000 | £1,000 | £20 | £150 |
| £90,000 | £4,500 | £2,500 | £50 | £375 |
Sacrificing 10% of salary
| Salary | Sacrificed | Above the cap | Extra employee NI | Extra employer NI |
|---|---|---|---|---|
| £35,000 | £3,500 | £1,500 | £120 | £225 |
| £50,000 | £5,000 | £3,000 | £240 | £450 |
| £60,000 | £6,000 | £4,000 | £80 | £600 |
| £90,000 | £9,000 | £7,000 | £140 | £1,050 |
These are illustrative calculations using current rates and thresholds, rounded to the nearest pound. They assume a standard category A employee with no other complications. Model your own numbers in the MySums Salary Sacrifice Pension Calculator rather than reading across from a salary that looks close to yours.
Why a £50,000 earner can pay more than a £60,000 earner
Look again at the 5% table. The person on £50,000 pays £40. The person on £60,000, sacrificing more in cash terms, pays half that.
That is not a mistake. National Insurance on the reinstated amount is charged at the rate for that slice of your earnings, not at a flat rate. Once your pay after sacrifice is already above the upper earnings limit of £50,270, every pound added back sits in the 2% band. Below that limit it sits in the 8% band, four times the rate.
This is worth flagging because several published examples apply 8% to the whole excess regardless of salary, which overstates the cost for anyone whose post-sacrifice pay clears the upper earnings limit. It can cut the other way as well. On a £55,000 salary with a 10% sacrifice, post-sacrifice pay is £49,500, so part of the £3,500 excess falls in the 8% band and part in the 2% band, giving about £116 rather than £280 or £70.
The practical upshot: the employee cost is largest in the band just below the upper earnings limit. HMRC's own estimate of an average £84 extra per affected employee in 2029/30 reflects this, because a large share of the people sacrificing heavily are already above £50,270 after sacrifice.
The employer's share is the bigger number, and it may reach you anyway
Compare the two columns in those tables. On a £90,000 salary with a 10% sacrifice, you pay £140 more. Your employer pays £1,050 more, plus £35 of Apprenticeship Levy if their pay bill exceeds £3 million. The employer cost is consistently several times the employee cost, because 15% applies to the whole excess with no upper limit.
That matters to you for one reason. Many employers currently hand their National Insurance saving back to staff as an extra pension contribution. Where that happens, the cap removes the saving that funds the top-up on everything above £2,000. On that £90,000 example, losing a £1,050 pension top-up is a far bigger dent than the £140 of National Insurance.
Nothing forces an employer to withdraw it, and nothing guarantees they will keep it. If your scheme shares the employer saving, that arrangement is the thing to watch between now and 2029, not your own NI line.
HMRC expects the change to affect about 290,000 employers, who will have to track contributions against the limit in payroll and report the amounts.
What has not been settled yet
The headline is fixed. The plumbing is not. The Act gives HM Treasury the power to make regulations and the government has said it will consult on their design and operation. Three details are still open, and all of them could change your answer:
Whether the limit is annual or applied per pay period. The Act expressly allows regulations to prescribe an equivalent of the limit for employees paid weekly or at other intervals, and even to round it up by as much as £1. An annual £2,000 limit and a monthly one of roughly £167 behave very differently if your contributions are uneven, for example when a bonus is sacrificed in a single month.
How multiple employments are treated. The limit is expressed per employee for a tax year. How that works when someone has two jobs with different employers has not been published.
What counts as a contribution for the limit. Regulations may set the chargeable amount differently from the amount sacrificed in prescribed cases, so edge cases such as bonus exchange and additional voluntary contributions need the detail before anyone can be certain.
HMRC has said more detailed guidance is due on GOV.UK ahead of April 2029. Until the regulations appear, treat any detailed planning around the edges of the limit as provisional.
Is salary sacrifice still worth it, and what should you do before 2029?
Yes, with a smaller advantage above the limit.
Up to £2,000 a year, nothing changes: you keep the full Income Tax and National Insurance saving. Above £2,000, salary sacrifice gives you the same Income Tax result as a net pay or relief at source contribution and the same reduction in adjusted net income, but without the National Insurance edge that made it better. It stops being the clear winner and becomes roughly level with the alternatives, while still avoiding the chore of claiming higher-rate relief through Self Assessment. For anyone using contributions to stay under £100,000 for the personal allowance or Tax-Free Childcare, or under £60,000 for the Child Benefit charge, the strategy is unaffected. You can check where you land with the MySums Adjusted Net Income Calculator.
Three things are worth doing now, and one is worth avoiding.
- Work out whether you are over the line at all. More than half of people using salary sacrifice are not, and for them this is a non-event.
- If you are over it, find out what your employer does with its National Insurance saving. That is where the real money is. HR or your scheme booklet will say whether the saving is shared.
- Diarise the regulations. The design detail is due before April 2029, and the per-pay-period question in particular could change how you time a bonus sacrifice.
What to avoid is rushing to front-load contributions purely because of 2029. You have until 6 April 2029 at current rules, the saving you would be protecting is modest for most people, and money locked into a pension is locked away until at least age 55, rising to 57 from April 2028. Contributions also have to fit inside your annual allowance. Front-loading can be sensible, but it should be a pension decision first and a National Insurance decision second.
Figures are for the 2026 to 2027 tax year and apply across the UK. National Insurance rates and thresholds for 2029/30 have not been set; the calculations above assume current rates continue, and the freeze on the main Income Tax and National Insurance thresholds was extended at Autumn Budget 2025 from April 2028 to April 2031. This is general information, not financial or tax advice. Your own circumstances can change the answer.