On 26 November 2025, Chancellor Rachel Reeves delivered the Autumn Budget that fundamentally changed the landscape of UK pension planning.
Buried in the detail was a bombshell that will affect millions of workers: from April 2029, only the first £2,000 of pension contributions made through salary sacrifice will be exempt from National Insurance contributions.
If you're currently using salary sacrifice to boost your pension and reduce your tax bill, you need to understand what's changing — and more importantly, what to do about it.
#What Changed?
#The Salary Sacrifice Cap
Currently, there's no limit on the amount you can contribute to your pension via salary sacrifice while avoiding National Insurance. Whether you sacrifice £2,000 or £20,000, you pay zero NI on those contributions.
From April 2029: Only the first £2,000 will be NI-exempt. Any salary sacrifice above that amount will be subject to both employer and employee National Insurance.
This single change is costed to raise £4.7 billion in 2029/30, making it one of the biggest revenue-raising measures in the Budget.
#What Didn't Change
In what many saw as a relief, the Chancellor confirmed:
- No changes to National Insurance rates: Still 8% between £12,570-£50,270, and 2% above
- No changes to income tax rates: 20%, 40%, and 45% bands remain
- Pension annual allowance stays at £60,000
- Tax relief on pension contributions remains (you still get income tax relief, just not NI exemption)
However, the government also extended the freeze on personal tax thresholds for three more years — until April 2031. This means fiscal drag will continue pulling more workers into higher tax brackets as wages increase.
#The Real-World Impact
Let's look at what this actually means in pounds and pence.
#Example 1: £45,000 Earner Contributing 5%
Current situation (contributing £2,250/year via salary sacrifice):
- Saves £180 in employee NI (8%)
- Saves £310 in employer NI (13.8%)
- Saves £450 in income tax (20%)
- Total saving: £940
From April 2029 (only first £2,000 is NI-exempt):
- Saves £160 in employee NI (8% of £2,000)
- Saves £276 in employer NI (13.8% of £2,000)
- Still saves £450 in income tax (20% of £2,250)
- Pays £20 extra in employee NI (8% of £250 over the cap)
- Employer pays £34.50 extra in employer NI (13.8% of £250)
- Net employee saving: £590 (down from £940)
That's £350 less tax benefit per year for a relatively modest pension contribution.
#Example 2: £110,000 Earner Contributing £15,000
This is where it gets painful.
Current situation (contributing £15,000/year via salary sacrifice):
- Saves £260 in employee NI (2% on income above £50,270)
- Saves £2,070 in employer NI (13.8%)
- Saves £6,000 in income tax (40%)
- Preserves personal allowance worth £2,600 (by staying under £100k threshold)
- Total saving: £10,930
From April 2029 (£13,000 over the NI exemption cap):
- Saves £160 in employee NI (8% of £2,000 at lower rate)
- Saves £276 in employer NI (13.8% of £2,000)
- Still saves £6,000 in income tax
- Still preserves personal allowance worth £2,600
- Pays £260 extra in employee NI (2% of £13,000)
- Employer pays £1,794 extra in employer NI (13.8% of £13,000)
- Net employee saving: £8,776 (down from £10,930)
That's £2,154 less tax benefit per year.
#Example 3: £60,000 Earner Contributing £10,000
Current situation:
- Saves £800 in employee NI (8%)
- Saves £1,380 in employer NI (13.8%)
- Saves £4,000 in income tax (40%)
- Total saving: £6,180
From April 2029 (£8,000 over the cap):
- Saves £160 in employee NI (8% of £2,000)
- Saves £276 in employer NI (13.8% of £2,000)
- Still saves £4,000 in income tax
- Pays £640 extra in employee NI (8% of £8,000)
- Employer pays £1,104 extra in employer NI (13.8% of £8,000)
- Net employee saving: £3,696 (down from £6,180)
That's £2,484 less tax benefit per year — a massive reduction for someone trying to build retirement wealth.
#Why This Matters More Than You Think
#1. The Employer Impact
Many employers currently absorb some or all of their NI savings into higher pension contributions. If they now have to pay employer NI on salary sacrifice contributions, they may:
- Reduce their contribution matching
- Cap salary sacrifice at £2,000
- Move away from salary sacrifice entirely
- Pass the cost back to employees
We're already hearing from HR teams trying to figure out what this means for their pension schemes.
#2. The Behavioral Change
Higher earners who were using salary sacrifice strategically (especially those in the £100k-£125k trap) will need to reconsider their approach:
- Is it still worth sacrificing £25,000 if £23,000 of it will be subject to NI?
- Should they max out before April 2029 while the rules are favorable?
- Would they be better off with pension contributions made outside of salary sacrifice?
#3. The Timing Window
You have 4 years to optimize under the current rules before the cap takes effect.
This creates interesting strategic opportunities:
- Maximize salary sacrifice now while it's fully NI-exempt
- Build up pension pots before the rules change
- Review whether you should be contributing more in the 2025-2029 window
#4. The Interaction with Other Benefits
Salary sacrifice doesn't just save NI — it also:
- Reduces your adjusted net income (important for child benefit, personal allowance taper, student loan repayments)
- Affects your eligibility for certain means-tested benefits
- Impacts mortgage affordability calculations
The cap won't change the income tax benefits, but it does change the overall value proposition.
#What Should You Do Now?
#If You're Contributing Less Than £2,000/Year
Good news: this change won't affect you. Continue as you are and consider whether you should be contributing more while the current rules still apply.
#If You're Contributing £2,000-£10,000/Year
You need to:
- Calculate your new effective cost — Use BishBashDosh to model what your contributions will actually cost you post-April 2029
- Consider front-loading — If you can afford it, maximize contributions in the next 4 years while full NI relief still applies
- Review your employer's policy — Ask your HR team how they plan to handle the changes
- Re-optimize your strategy — What was optimal in 2025 might not be optimal in 2029
#If You're Contributing More Than £10,000/Year
This is a significant change for you. You should:
- Model the 2029 scenario now — Understand exactly how much more expensive your pension contributions will become
- Maximize the current rules — Consider increasing contributions before April 2029 if you're under the £60,000 annual allowance
- Explore alternatives — Regular pension contributions (not via salary sacrifice) still get income tax relief
- Consider carry-forward — If you haven't used your full annual allowance in previous years, you might be able to contribute more now
- Talk to an IFA — For large contribution amounts, professional advice could save you thousands
#The Silver Lining: Tax Relief Remains
It's important to note what didn't change:
- Income tax relief on pension contributions is untouched — You still get 20%, 40%, or 45% tax relief depending on your marginal rate
- The annual allowance is still £60,000 — You can still contribute significant amounts
- Employer contributions are still valuable — Even if you pay NI on salary sacrifice, employer matching is still free money
Pensions remain one of the most tax-efficient savings vehicles available. The NI exemption on salary sacrifice was always a bonus on top of the core tax relief.
#What This Means for BishBashDosh Users
We're already working on updates to the calculator to help you navigate this change:
#Now Available
- Updated calculations showing the post-2029 impact of the £2,000 cap
- Comparison views: "current rules" vs "2029 rules"
- Scenario modeling to find your optimal contribution level under both regimes
#Coming Soon
- Front-loading strategies to maximize NI savings before April 2029
- Employer NI impact calculations (to help you negotiate with your employer)
- Alternative contribution method comparisons (salary sacrifice vs regular contributions)
- Year-by-year optimization showing how to adjust your strategy
#The Bigger Picture
This Budget change reflects a broader reality: the UK government needs revenue, and tax-efficient pension contributions are an obvious target.
The salary sacrifice cap is just the latest in a series of pension tax restrictions:
- Lifetime allowance changes (now abolished, but was restricted for years)
- Annual allowance reductions (from £255,000 in 2010 to £60,000 today)
- Tapered annual allowance for high earners
- Removal of higher-rate tax relief (repeatedly proposed, never implemented)
The message is clear: optimize while you can, because the rules keep changing.
#Questions We're Hearing
Q: Should I stop using salary sacrifice?
A: No. Even with the cap, salary sacrifice still provides income tax relief and reduces your adjusted net income. It's just less valuable than before for contributions over £2,000.
Q: Can I contribute more than £2,000 via salary sacrifice?
A: Yes. You just won't get the NI exemption on the amount above £2,000. You'll still get income tax relief on the full amount.
Q: Should I max out my contributions before April 2029?
A: If you can afford it and you're under the annual allowance, it could make sense to front-load contributions while full NI relief is available. But this depends on your individual circumstances — model it first.
Q: Will my employer still match contributions above £2,000?
A: This depends on your employer's policy. Some may cap salary sacrifice at £2,000, others may continue but adjust their matching formula. Check with your HR team.
Q: Does this affect existing pension contributions?
A: No. This affects new salary sacrifice arrangements from April 2029 onwards. Contributions you've already made are unaffected.
Q: What about NHS pension contributions?
A: Public sector pension schemes may be treated differently. Watch for specific guidance from the Treasury on this.
#Final Thoughts
The £2,000 salary sacrifice cap is a significant change, but it's not the end of pension tax relief.
What is clear: the next 4 years represent the last window of opportunity to maximize salary sacrifice under the current generous rules.
If you've been on the fence about increasing your pension contributions, now is the time to run the numbers and make a decision. The clock is ticking.
Sources:
Elliot Taylor
Founder, BishBashDosh
Want to model how the 2029 changes will affect your pension strategy? Use our updated calculator to run your scenarios and find your optimal contribution level.