Autumn Budget 2025: Salary sacrifice pension perk to be capped at £2,000 a year from April 2029

How salary sacrifice on pensions currently works 

Salary sacrifice is a scheme that allows you to 'give up' some of your salary in exchange for your employer paying the difference into your pension.

It's a decent perk because, currently, you don't pay income tax or NI on the amount you sacrifice via the scheme.

But from April 2029, it's being capped, so you'll start paying NI on any amount over £2,000 a year paid into a pension via salary sacrifice. 

What the changes mean in more detail

Anyone paying over £2,000 a year into a pension specifically via salary sacrifice will pay NI at the normal rate on any amount over the initial £2,000.  

Whether this affects you will depend on how much you earn, and how much you contribute to your pension via salary sacrifice. So if, for example, you make a 5% contribution via salary sacrifice to your pension and earn £40,000 or less, you won't be affected by the change.

However middle and higher earners, or those who contribute a larger percentage of their earnings via salary sacrifice, are likely to see less in their take-home pay. 

You'll still get tax relief on pensions 

The changes to salary sacrificed pension contributions shouldn't be confused with overall tax relief on pensions. This means for every £80 a basic rate taxpayer puts into a pension, they get a £20 top up from the Government. Higher and additional-rate taxpayers can earn even more from tax relief.

All taxpayers will continue to get income tax relief on pension contributions, although there are limits on how much you can get tax relief on each year – currently 100% of your annual earnings or £60,000, whichever is lower. 

Salary sacrifice is an extra perk because of the NI savings you get on top of tax relief. 

You can still pay more than this into your pension each year and benefit from tax relief – but you won't get NI relief on the bit above £2,000. 

Will salary sacrifice still be worth it after the changes?   

Making pension contributions through salary sacrifice can also be a useful way to lower your salary so that you don't move into a higher tax band.
 
So despite the £2,000 cap, it could still help some people avoid moving into a higher tax band (staying below the 40% higher-rate income tax threshold, for example). 

Pensions are still one of the best tax breaks around, so even with the NI cap coming, salary sacrifice can still be a good way to save for retirement. 

One thing to take in to consideration with salary sacrifice is that, as the name suggests, you now have a lower salary. This can have knock-on effects, for example it could reduce your earnings so that you'd no longer qualify for statutory maternity pay, or could mean you're not able to borrow as much for a mortgage, for example.

We've more info in our full Salary sacrifice guide.