HM Revenue & Customs (HMRC) is introducing a new cap on National Insurance (NI) relief for pension salary sacrifice contributions, set to affect approximately 3.3 million pension savers. Starting in April 2029, the Labour Party government will restrict the NI relief on these contributions to a maximum of £2,000 per year. Any amount contributed beyond this limit will no longer be exempt from NI charges.
Chris Eastwood, CEO of Penfold, highlighted the impact of this change: “Salary sacrifice has been a win-win for employers and employees for years, reducing National Insurance costs while boosting retirement savings. However, those contributing above £2,000 annually via salary sacrifice will lose NI savings on the excess, and employers will face higher NI costs accordingly.”
Eastwood urged businesses to prepare for the upcoming changes: “Companies should begin assessing the financial implications now and ensure clear, timely communication with their staff before the policy takes effect.” He emphasized that employers still have a three-year period to benefit from current arrangements and, for those not yet utilizing salary sacrifice, it remains an opportunity to capitalize on NI savings before 2029.
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John Stepek commented on the cap’s long-term effects: “Capping salary sacrifice at £2,000 will make it harder for individuals to build pensions during their peak earning years, sometimes referred to as their ‘panic years.’ Fortunately, the change is not immediate but gives time to adjust.”
Meanwhile, Cushon reassured employers and employees that benefits remain: “Up until April 2029, you can enjoy the full National Insurance contributions savings on all salary sacrifice amounts. Even after the £2,000 cap is introduced, salary sacrifice still offers considerable value.”
Cushon also highlighted how they simplify the process: “Though setting up salary sacrifice can seem complex, at NatWest Cushon, we handle all the heavy lifting—including payroll integration, providing necessary templates, and educating employees about the benefits—so businesses can implement it hassle-free and at no extra cost.”
With the 2029 deadline approaching, pension savers and employers alike are advised to act swiftly to maximize the current advantages of salary sacrifice schemes before the cap takes effect.