Autumn Budget 2025
From April 2029, the government will introduce a cap on the national insurance contributions (NIC) exemption for pension contributions made through salary sacrifice.
Under the new rules, only the first £2,000 of contributions per person, per year will remain exempt from NIC. Any amount above this threshold will be treated as an employee contribution (rather than employer contribution as currently under salary sacrifice) and will be subject to both employee and employer NIC. This marks a significant shift from the current system, where all salary-sacrificed pension contributions avoid NIC charges.
For employees who contribute more than £2,000 per year via salary sacrifice, the financial impact will be noticeable. Contributions above the cap will attract NIC at the standard rates of 8% on earnings up to £50,270 and 2% thereafter (based on current rates).
Employers will also face higher costs. Currently, salary sacrifice reduces employer NIC liabilities, but from April 2029, contributions above £2,000 will incur NIC charges at a rate of 15%. For businesses with generous pension schemes or large workforces, this could translate into thousands of pounds in additional payroll costs, albeit some employers may have previously chosen to pass this saving on to their employees by way of an additional pension contribution.
