Pension Salary Sacrifice April 2029 Changes: What Do They Mean for Employers?

The 2025 Autumn Budget delivered significant news for UK employers operating pension salary sacrifice schemes.

From April 2029, the government will cap National Insurance Contributions (NICs) relief on salary-sacrificed pension contributions at £2,000 per employee annually. This change represents one of the most substantial pension reforms in recent years and requires careful strategic planning from businesses of all sizes.

At Hamlyns, we’re helping employers across Surrey and beyond understand these changes and prepare for their implementation. Whilst April 2029 may seem like a long time away, it’s worth planning for these pension reforms now.

Let’s break down exactly what’s changing, why it matters for your business, and the practical steps you should take to ensure compliance whilst maintaining competitive employee benefits.

What’s Changing With Pension NICs in April 2029?

Salary sacrifice arrangements allow employees to exchange part of their gross salary or bonus in return for employer pension contributions. At the moment, both employers and employees enjoy full NIC relief on any amount sacrificed into pensions, making it one of the most tax-efficient ways to save for retirement.

From April 2029, this changes dramatically. Only the first £2,000 of employee pension contributions through salary sacrifice will remain exempt from NICs each year. Any contributions above this threshold will be subject to both employer and employee NICs, as if the sacrificed amount were regular earnings.

Based on current NIC rates and thresholds, this means:

• Employees earning under £50,270 will pay 8% NICs on contributions above £2,000
• Employees earning above £50,270 will pay 2% NICs on the excess
• Employers will face 15% NICs on amounts employees sacrifice over £2,000

At present, however, it’s important to note that pension contributions are still entitled to full Income Tax relief (subject to usual annual allowance limits). The changes announced in the Chancellor’s Budget only affect the NIC treatment of amounts exceeding the £2,000 cap.

Why Does This Matter for Employers?

This reform affects businesses financially and operationally. The government expects these reforms to generate an additional £4.7 billion in 2029-30 for the Treasury, and £2.6 billion in 2030-31. The Office for Budget Responsibility (OBR) predicts that employers will bear approximately 76% of these costs through increased payroll expenses.

For example, an employee earning £40,000 a year sacrifices £5,000 into their pension and generates NIC savings for both them and their employer. From April 2029, the £3,000 above the cap will be subject to NICs, which, at current rates, costs the employer an additional £450 a year, and the employee £240.

For businesses with multiple employees making substantial pension contributions, these costs accumulate quickly. Larger firms with generous pension schemes could face material increases in their annual payroll costs.

Not only that, but salary sacrifice has become a widely valued employment perk, encouraging strategic saving while boosting take-home pay month-to-month. Research indicates that 38% of workers would save less into their pensions if salary sacrifice benefits were capped. This could undermine the success of auto-enrolment and create retirement concerns for employees. Employers who currently pass some or all of their NIC savings back to employees as enhanced pension contributions, or use the savings to fund other employee perks, will need to thoroughly review these processes before the changes take effect.

The reform also affects bonus sacrifice arrangements, where employees redirect bonuses into pensions to benefit from NIC relief. For bonuses exceeding £2,000 annually, this strategy may not be as effective come April 2029.

What Should Employers Do Now?

The April 2029 implementation date provides valuable preparation time. Here’s some potential areas to consider reviewing between now and then:

• Calculate how much the NIC changes will add to your payroll costs
• Engage with employees currently sacrificing more than £2,000 annually and help them understand how this affects their savings and take-home pay
• Consider whether your pension arrangements remain optimal post-2029 (e.g. you may wish to explore moving towards full employer-funded contributions to avoid NIC charges on employee salary sacrifice amounts)
• Explore alternative benefit offerings and contribution structures, as well as offsetting options and savings that can be made in your benefits portfolio
• Given the transition window, you may wish to adjust pension arrangements gradually between now and then.

Other Implications

These pension changes brought forth by the Chancellor have divided opinion, and they certainly sit within a wider pensions discussion worth revisiting. Successive governments have gradually reduced tax relief on pension savings, with the annual allowance falling significantly in recent years. The cap on salary sacrifice NIC relief represents another incremental change in limiting pension tax advantages.

Everyone needs to save for retirement, and workplace pensions continue to offer valuable tax benefits even after these changes. Most employees making typical pension contributions, particularly those contributing below the £2,000 threshold, won’t be affected.

How Hamlyns Can Help

If you are affected by the new pension salary sacrifice NIC cap, and you need objective, proactive, and strategic help to maintain cost-effective, competitive employee benefits, the experienced team at Hamlyns can help.

Whether it’s reviewing your pension scheme design and structure, modelling the financial impact of these reforms on your business, or a transparent conversation about other savings opportunities in your reward package, we’re happy to provide you with tailored advice and recommendations. We want to help you plan the transition to these reforms smoothly to minimise disruption.

Contact Hamlyns today to schedule a strategic review of your pension arrangements and ensure your business is fully prepared for these significant workplace pension reforms.