In her Autumn Budget delivered on 26th November 2025 the Chancellor, Rachel Reeves announced that from 6 April 2029, the amount that an employee may contribute to a pension through salary sacrifice without paying national insurance contributions (NICs) will be capped at £2,000 a year.
This impending cap on salary sacrifice pension contributions at £2,000 per year is expected to raise £4.7 billion. However, even the OBR has acknowledged that this figure is subject to uncertainty, as employer and employee behaviour in response to the change remains difficult to predict.
Between now and 2029, employees may therefore have a significant opportunity to maximise their use of salary sacrifice arrangements, increasing pension contributions and potentially paying up to their annual allowance (currently £60,000 per annum for most individuals), while continuing to benefit from National Insurance savings.
Employers may also look to adapt their approach by restructuring contribution models. This could include moderating salary increases while enhancing ‘standard’ employer contributions and reducing required employee contributions. Moving towards a predominantly employer-funded scheme, for example with an 8–10% employer contribution and voluntary employee contributions, may allow full National Insurance relief to be preserved on employer contributions. Employees could then continue to voluntarily sacrifice up to the £2K limit and retain the NI savings.
In this environment, it will be more important than ever to review your workplace pension scheme design, contribution structures and employee financial education. Ensuring employees understand these changes and are actively engaged with their pension planning will be key.
Please let us know if we can support you in reviewing your arrangements or exploring the most appropriate approach going forward.