The new cap on salary sacrifice pension contributions may not arrive until 2029, but employers and savers should not underestimate what it means for workplace pension schemes. Salary sacrifice has been one of the quiet success stories of workplace pensions: it helps employees save more without reducing take-home pay, while giving employers flexibility over national insurance costs.
Employers adopted salary sacrifice in good faith and built it into long-term reward strategies, so changing the rules now creates real challenges for planning and saver confidence. Introducing a £2,000 cap on the benefit risks weakening both, increasing costs for employers and undermining incentives to contribute above the statutory minimum.
What is particularly concerning is how poorly understood these changes are among employees. Our research, published in January 2026, shows that while two in five (40%) defined contribution (DC) savers say they use salary sacrifice, fewer than half (41%) are aware that the rules are set to change. Even among those saying they use salary sacrifice today, understanding is far from universal. Nearly two-thirds (62%) expect to pay more national insurance, almost half (46%) believe less money will end up in their pension, and over half (51%) think their employer will face higher national insurance costs too.
Lack of understanding is a red flag in retirement planning. When people do not understand how pension changes affect them, confidence suffers and this can be a barrier to action. At a time when more than half of UK savers are already off track for an adequate retirement, that should set alarm bells ringing.
Employers sit at the sharp end of this change. Many are rightly concerned that higher national insurance costs will make it harder to sustain contributions above the statutory minimum, which can only mean smaller pension pots in the long run.
The good news is there is time to prepare and see how they can maintain the generosity of their workplace pension arrangements to lessen the harm to savers’ retirement prospects. Employers should use the run-up to review their pension arrangements, model the impact of the cap, and support staff through clear, early communication about what is changing and how they can stay on track.
Pensions are complicated enough already. Stability, clarity and supportive policy are essential if we want people to keep saving for the long term.
Zoe Alexander is director of policy and advocacy at Pensions UK
