What the 2025 Budget Means for Pension Salary Sacrifice

A Quick Recap

The Autumn Budget 2025 brings a significant change to how pension contributions via salary sacrifice are treated. Right now, both employers and employees save on National Insurance Contributions (NICs) by using these schemes. However, starting 6 April 2029, this will change—NIC relief on pension salary sacrifice will be capped at £2,000 per year.

Why This Matters

• Currently: Employees forgo part of their salary, which is then matched by the employer as a pension contribution. Neither side pays NICs on that amount.

• From April 2029: NIC will be charged on any sacrificed amount above £2,000. This means both parties lose some of their current savings.

How It Affects Real People

Let’s say Ellie earns £65,000 a year and agrees to sacrifice £5,000 of her salary in pension contributions:

• Before April 2029: £5,000 is free from NICs.

• After April 2029:

  • First £2,000 remains NIC-free.

  • Remaining £3,000 is taxed:

    • Ellie pays 2% NIC = £60.

    • Her employer pays 15% NIC = £450.

This change will raise approximately £4.7 billion in NICs during 2029–30.

Who’s Hit the Hardest?

• Higher contributors: Anyone pension-saving above £2,000 via salary sacrifice will face extra NIC costs.

• Mid-earnings employees (earning up to £50,270): They pay 8% NIC on the excess; higher earners pay 2% NIC.

• Employers: They’ll face a 15% NIC charge on top of current contributions.

The Bigger Picture

• Tax relief on pension contributions remains: The change only affects NIC relief, not income tax breaks.

• Other benefits unaffected: Schemes like childcare vouchers, bike-to-work, EVs and outside-salary-sacrifice pensions are not changing.

• Admin implications: Businesses will need to track how much each employee sacrifices and update payroll, contracts, handbooks, and pension communications.

What Should You Do?

• Employees should review their contribution levels and be aware of the changes in 41 months time - make hay now whilst the sun shines?

• Employers need to plan ahead: update systems, inform staff, and consider how this affects benefit packages.

• Everyone should ensure their pension and salary sacrifice strategies align with this upcoming change.

Bottom Line

From April 2029, NIC relief on pension salary sacrifice will be capped at £2,000 per year. Anyone contributing more through this method will owe NICs on the excess—on both sides. This hits employees’ take-home pay and raises costs for employers. Fortunately, employers have time to prepare and adapt ahead of the rollout.

💡 Want more detail or need help adjusting your pension plan? Now’s a great time to chat so drop me a line below