Pensions Salary Sacrifice Changes from 2029

This article is provided by BRC Associate Member, Marsh.

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The Government has passed the National Insurance Contributions (Employer Pensions Contributions) Act 2026, introducing an annual cap on National Insurance (NI) relief for pensions salary sacrifice. The change takes effect on 6 April 2029 and will limit tax-advantaged pension salary sacrifice to the first £2,000 of sacrificed pay each year. Contributions above that threshold will still receive income tax relief but will be subject to employee and employer National Insurance.

What are the changes?

From 6 April 2029:

• A £2,000 per tax year cap will apply to employee pension contributions made via salary sacrifice that are exempt from NI. Contributions above £2,000 will still receive tax relief but will be subject to both employee and employer NI.
• This means the most an employer can save is £300 per employee per annum.
• The cap will apply across all employments (like the annual allowance). The Government expects this measure to raise around £4.7bn in 2029.

Why should employers be concerned about this?

There is likely to be a significant impact on Employers already using pensions salary sacrifice. We are seeing a 30%–90% reduction in employer NI savings across our clients. This change will also affect Bonus Sacrifice, and the attractiveness of such schemes for employers.

Look at an example employer with 1,000 employees:

Whilst the employee impact is expected to be smaller, there will be an impact on net take home pay which will need to be communicated effectively.

There will also need to be significant changes to payroll systems to ensure that the changes are processed correctly. Payroll systems will likely need (re)configuration, testing, and new processes added by payroll teams.

How should employers approach this change

Whilst April 2029 seems a long way off, with the significant impact on costs and processes employers should look to understand the financial impact on the business and employees in 2026 to ensure they have time to make any changes needed if they wish to mitigate the increase in costs.

Options for consideration may include:

• Review of current salary sacrifice and pension design;
• Whether existing NI‑sharing arrangements remain sustainable;
• Changes to wider benefit offerings.

Pensions Salary Sacrifice will still be a valuable tool for employers, and it will be important to approach these changes effectively and give time to make any changes needed.

If employers do not currently have pensions salary sacrifice in place, they still have nearly three years to make savings on the current regime and will continue to make savings after the change.

Contacts:

Kelvyn Sampson - Retail, Leisure & Hospitality Industries Leader, Marsh UK Industries, kelvyn.sampson@marsh.com

Carla Rawlinson - Senior Retirement Consultant, Marsh Ltd, carla.rawlinson@marsh.com