Autumn Budget 2025: National insurance contribution (NICs) relief on pensions salary sacrifice will be capped at £2,000 annually per person from 2029.
In her Autumn Budget announcement, Chancellor Rachel Reeves stated that the costs of this relief were set to increase from £2.8 billion in 2016-17 to £8 billion by 2030-31 without reform, and the use of this has disproportionately benefitted higher earners.
Employees who contribute up to £2,000 into their pension each year via a salary sacrifice arrangement will continue to benefit, but employee and employer NICs will be charged on the amount above £2,000 for those who contribute above this.
The cap means 74% of those currently using salary sacrifice will be unaffected.
Steve Watson, director of policy and research at Natwest Cushon, said: “Salary sacrifice will still be an effective and very worthwhile tactic for both employees and employers despite the introduction of the £2,000 contributions cap. For example, if employees are paying in 5% through salary sacrifice, which is the typical scheme structure in workplace pensions, anyone earning £40,000 or less will not be impacted by the changes.
“For employers which run a scheme using qualified earnings with employees contributing 5%, there’s only a small difference: being just over £200 over the cap in the current tax year. It may be that employers do it similarly to the tapered annual allowance where they take the £2,000 limit, divide it by 12, and they get their £166 of salary sacrifice portion each month and anything else is automatically considered a net pension contribution.”
Zoe Alexander, executive director of policy and advocacy at Pensions UK, added: “Applying NI to salary-sacrificed pension arrangements above £2,000 will harm the economy, businesses and pension saving. However, applying the changes from 2029 should at least give businesses time to prepare and we urge them to consider how they can maintain the generosity of their workplace pension arrangements to lessen the harm to savers’ retirement prospects.”
Hannah English, partner and head of DC corporate consulting at Hymans Robertson, said: “Preserving NI savings on pension contributions is vital as it’s an incentive for people to save into pensions, as well as providing a mechanism for controlling payroll costs. The decision will have hard-hitting implications for both employers and employees from 2029. The cost increase for employers could also see many of them review future pay rises, reduce pensions contribution offerings or adjust future recruitment in order to offset increases in costs.”
James Austen, partner at Collyer Bristow, added: “The new NICs charge on salary-sacrificed pensions above £2,000 from 2029 will add up to 13.8% employer contributions to the tax bill, eroding a key benefit for high earners. High net worth clients relying on salary sacrifice for retirement should anticipate a net loss of tax efficiency post-2029, prompting a review of total remuneration packages to maintain wealth accumulation goals.”
