On 26 November 2025, Chancellor Rachel Reeves announced the Autumn Budget, which includes a key change to pension contributions made through salary sacrifice. From 6 April 2029, contributions over £2,000 a year will attract National Insurance.
What you need to know about pension changes
- Employee pension contributions made via salary sacrifice over £2,000 in a tax year will be subject to both employer and employee NIC.
- These changes won’t take effect until 6 April 2029, meaning the full advantages of uncapped tax-efficient saving that come with salary sacrifice remain unchanged until then.
- Many savers will not breach the £2,000 salary sacrifice limit.
- Pensions are designed to fund your retirement and remain a tax-efficient way to save.
- For more information, visit our salary exchange page.
What is Salary Sacrifice?
Salary sacrifice, (or salary exchange) is a government-backed arrangement that allows both the employer and their employees to save on tax.
It works by allowing employees to exchange part of their salary in return for an employer pension contribution. Because their salary is being exchanged, their gross salary is reduced, meaning both the employer and employee don’t pay NIC the amount exchanged.
How may the Budget announcement affect my pension contributions?
Currently, neither employees nor employers pay National Insurance on employee pension contributions made via salary sacrifice. Under the proposed changes, contributions above £2,000 in a tax year will attract NICs for both employers and employees.
This will impact a small number of savers, as most people do not exceed this limit.
This change is scheduled for 6 April 2029, and we’ll share more details as they become available.
What about contributions from my employer?
Non-salary-sacrificed employer pension contributions remain unaffected. There is no limit on direct employer contributions, and they will continue to be free from NICs.
This change only affects employee contributions made through salary sacrifice.
- If you exchange part of your salary for pension contributions, which usually appear as employer contributions on your payslip, you’re using salary sacrifice.
- If your contributions are deducted from your salary and shown as employee contributions, then you’re not using salary sacrifice.
What happens now?
Until 6 April 2029, pension contributions paid via salary sacrifice will not incur additional NICs. We’ll keep you updated as more information becomes available.