A quiet but important change to pension rules is coming in April 2029, and if you’re contributing to your pension through salary sacrifice, it’s worth understanding how it might affect you.
From that date, only the first £2,000 per tax year of pension contributions made via salary sacrifice will be exempt from National Insurance. Employer pension contributions made outside salary sacrifice remain free of NICs.
Anything above that will face the usual National Insurance rates, currently 8% for most employees and 15% for employers on relevant earnings.
It’s not a reason to stop contributing, but it may be a good reason to review how you’re saving and whether your current setup still makes the most of the available tax benefits.
Who’s Likely to Be Affected?
This change mainly impacts mid- to higher earners who use salary sacrifice to maximise pension contributions, especially those who:
- Regularly sacrifice more than £2,000 per year (e.g. £200+ per month)
- Use pension contributions to reduce their taxable income below key thresholds, such as £100,000 (to preserve the personal allowance) or £60,000 (to manage the High Income Child Benefit Charge, which now tapers between £60,000 and £80,000).
- Work for employers who pass on some or all of the National Insurance savings as part of their pension benefits
If you’re in any of these categories, it’s possible your take-home pay could be slightly lower in future, or that the pension “boost” you’ve been enjoying becomes less generous.
What’s Actually Changing (and What Isn’t)?
The fundamentals of pension saving remain the same. You can still contribute well above £2,000 per year into your pension, and still benefit from tax relief, currently up to the standard annual allowance of £60,000 (subject to future changes in tax rules).
What’s changing is the National Insurance treatment of salary sacrifice.
Currently, when you give up part of your salary for pension contributions, both you and your employer avoid paying National Insurance on the sacrificed amount. From April 2029, the NI exemption will only apply to the first £2,000 per year. Beyond that, it’s treated like normal income again, NICs will apply, reducing both employer savings and employee take-home pay.
The Real “Trap”, A Behaviour Shift
The real risk here isn’t the rule change itself, it’s how people might respond to it.
Many higher earners set their salary sacrifice to auto-maximise pension contributions each month, often £1,000 or more. If nothing changes, those people may see a slight drop in net pay from April 2029 and not immediately know why.
Worse, some may interpret the change as a signal to reduce or stop pension contributions altogether, losing out on long-term tax relief and investment growth.
What Can You Do Now?
This is a good moment to pause and review your current pension setup. Start by:
- Checking your current salary sacrifice level, are you over the £2,000 mark?
- Speaking to your HR/payroll team, will your employer continue passing on any NI savings after the change?
- Modelling the impact, small tweaks now could avoid surprises later
- Exploring alternatives, including direct personal pension contributions or different income strategies to manage tax thresholds
Final Thought
Salary sacrifice remains one of the most tax-efficient ways to save for retirement, but from 2029, the sweet spot shifts slightly. This isn’t a trap to panic over, but a nudge to make sure your pension planning stays fit for purpose.
If you’re unsure how this change could affect you or want help reviewing your pension approach, we’re on hand.
📞 020 8366 4400
✉️ enquiries@cedarhfs.co.uk