The £2,000 salary sacrifice cap from April 2029: what it means for your pension

The short answer: From 6 April 2029, only the first £2,000 a year you pay into a pension through salary sacrifice will be free of National Insurance. Above that, you and your employer both pay National Insurance on the extra. Income Tax relief doesn't change, and the government expects 56% of people using salary sacrifice to be fully protected.

What is the salary sacrifice cap for pensions?

It's a new limit on the National Insurance saving you get from salary sacrifice. From April 2029, GOV.UK says the amount that's free of National Insurance will be capped at £2,000 a year.

First, a quick recap. Salary sacrifice is when you agree to take a lower salary (or give up a bonus), and your employer pays the same amount into your pension instead. Because the money never reaches your payslip as pay, today you don't pay Income Tax or National Insurance on it. Your employer saves National Insurance too, and MoneyHelper notes they can choose to add that saving to your pension.

The cap changes the National Insurance part only. Here's what stays and what goes:

• Stays the same: no Income Tax on what you sacrifice, subject to the usual limits.

• Stays the same: your employer's own pension contributions are still free of National Insurance.

• Changes: anything you sacrifice above £2,000 a year gets employee and employer National Insurance.

You can still sacrifice more than £2,000. The government is clear that contributions above the cap are allowed. They're just treated like ordinary employee pension contributions for National Insurance.

Capital at risk. The value of your pension can go down as well as up, and you may get back less than you pay in.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

When does the £2,000 salary sacrifice cap start?

The cap starts on 6 April 2029, the first day of the 2029/30 tax year. The government's policy paper gives that date, and nothing changes before then.

It's already in law. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 applies from the 2029-30 tax year. It says the first rules made under it must set the limit at £2,000 a year.

Some detail is still to come. The policy paper says the design of the limit will be set out in regulations, and the government says more guidance will be published before April 2029. That's why we can't yet say exactly how things like monthly pay, bonuses or leaving a job partway through the year will be handled.

You won't need to do anything with HMRC. The government's guidance says your employer will make the payroll changes so that National Insurance applies above £2,000.

Does the salary sacrifice cap affect Income Tax relief?

No. The policy paper says Income Tax relief on employee and employer pension contributions stays as it is. Everything you sacrifice, including anything over £2,000, still goes into your pension without Income Tax being taken.

The usual limits still apply. Most people can pay in up to £60,000 a year across all their pensions before they go over the annual allowance and face a tax charge.

There's one more thing that doesn't change, and parents may care about it. Salary sacrifice lowers your "adjusted net income" (your taxable income after things like pension contributions). For example, you can't get Tax-Free Childcare if you or your partner expect adjusted net income over £100,000. It also affects how the Personal Allowance taper above £100,000 works. The policy paper says the cap won't change this effect. You just pay National Insurance on the part above £2,000.

How much extra National Insurance would I pay?

For most people affected, not a huge amount. The government estimates the average extra employee National Insurance at £84 in 2029/30 for those over the cap.

It also estimates that 7.7 million employees use salary sacrifice for their pension, and 3.3 million of them sacrifice more than £2,000. So about 44% will pay something extra, and about 56% won't be affected at all.

How much you'd pay depends on how much you sacrifice above £2,000 and what you earn. In 2026/27, employee National Insurance is 8% on most earnings and 2% on earnings over £967 a week (£50,270 a year). Employers pay 15% above £5,000 a year, according to the 2026/27 rates for employers.

Example: three made-up savers

These figures use today's 2026/27 rates for England, Wales and Northern Ireland. The rates in 2029/30 may be different, so treat this as an illustration only.

Assumes category A National Insurance, no other income and no change to the employer's contribution. Real payroll works week by week or month by month.

What the table shows:

1. Sam isn't affected. Their sacrifice is exactly £2,000, so nothing changes.

2. Priya pays £56 more a year. All £2,700 still goes into her pension free of Income Tax.

3. Alex pays 2%, not 8%. Their pay is above £50,270, so National Insurance on the extra is charged at the lower rate.

Alex's employer takes the bigger hit, and that can matter to you. Some employers pass on part of their National Insurance saving to your pension. If their saving shrinks, they may review what they add, so it's worth asking.

Should I keep using salary sacrifice for my pension?

Everyone's situation is different, so we can't say what's right for you. What we can do is set out how the numbers work after 2029.

Above the cap, you still won't pay Income Tax on what you sacrifice. But the government points out that this is true of all pension contributions, within the usual limits. It also says contributions over £2,000 will be treated for National Insurance like other employee workplace pension contributions. So on that slice, the National Insurance gap between salary sacrifice and paying in the ordinary way largely closes. The policy paper notes some people may choose to sacrifice less as a result.

MoneyHelper also lists some downsides of a lower salary that apply whatever the cap:

• You might only qualify for a smaller mortgage.

• It can affect benefits like Statutory Maternity Pay.

• Life cover from your employer may be lower if it's based on your salary.

• The money is usually locked in your pension until 55 (57 from April 2028).

There's also a floor. HMRC guidance says salary sacrifice can't take your cash pay below the National Minimum Wage.

If you'd like to see how salary sacrifice compares with paying into a personal pension yourself, our guide to SIPPs and workplace pensions works through an example. For a personal answer, MoneyHelper's pension specialists are free to talk to.

How does salary sacrifice affect maternity pay?

Salary sacrifice can lower your Statutory Maternity Pay (SMP), because SMP is based on the pay you actually received. The cap doesn't change that today, and it's not yet clear whether the 2029 rules will.

HMRC's SMP guidance says your average weekly earnings are worked out from the pay you got after the sacrifice. It also says SMP itself can't be sacrificed and must be paid in full.

SMP is 90% of your average weekly earnings for the first 6 weeks. For the next 33 weeks, it's £194.32 or 90% of your earnings, whichever is lower. So salary sacrifice usually makes the biggest difference in those first 6 weeks.

Example: the first 6 weeks

In this made-up example, Jo earns £700 a week and sacrifices £35 a week into her pension.

• Her average weekly earnings for SMP are £665, not £700.

• For the first 6 weeks she gets 90% of £665, which is £598.50 a week, instead of £630.

• That's £31.50 a week less, or £189 over the 6 weeks.

• For the next 33 weeks she gets £194.32 a week either way, because 90% of her pay is higher than that.

The good news is on the pension side. MoneyHelper says salary sacrifice payments count as your employer's, so the whole amount should carry on during paid leave, as long as your pay stays above the National Minimum Wage. GOV.UK adds that your employer pays contributions based on the salary you'd have had if you weren't on leave.

HMRC's employer guidance says big life changes, such as a partner becoming pregnant, may let you opt in or out of salary sacrifice. Our guides to your pension during maternity leave and what you'll actually be paid on maternity leave go into more detail. The free maternity leave money planner can help you map out your pay week by week.

What can I check now?

Nothing changes until April 2029, so there's no rush. These quick checks will help you see where you stand:

1. Look at a payslip. Does it show a pension deduction labelled salary sacrifice, SMART or salary exchange? The government suggests you ask your employer if they use salary sacrifice.

2. Add up a year's sacrifice. Include any bonus you sacrifice. Is it more or less than £2,000?

3. Ask if your employer shares its saving. And whether that might change after 2029.

4. Planning a family? Ask how your employer works out pay and pension contributions during leave.

5. Check your total pension payments against your £60,000 annual allowance if you pay in a lot.

Still got questions?

Does the salary sacrifice cap affect sole traders? No. It's about employees who pay into a workplace pension through salary sacrifice. If you're self-employed, you won't be using salary sacrifice, so it won't change how you pay into your own pension.

Does the cap include my employer's own contributions? No. The government says all employer pension contributions will stay free of National Insurance. The cap only counts the salary or bonus you give up.

Do I need to tell HMRC anything? No. Your employer will make the changes through payroll.

Can I still use salary sacrifice to get Tax-Free Childcare or keep Child Benefit? Yes. The government says you can keep doing this. Anything you sacrifice above £2,000 will just have National Insurance on it.

What if I sacrifice my bonus into my pension? Sacrificed bonuses count too. The government describes salary sacrifice as giving up salary or a bonus, so a large bonus sacrifice could take you over £2,000 in one go.

Could the £2,000 limit change? The Act lets the government set the limit through regulations. Rules can change in future, so it's worth checking the official guidance closer to April 2029.