The Chancellor’s Autumn Budget has delivered a big change for salary sacrifice pension contributions - and it’s one employers can’t ignore.

What’s changing?
Right now, employees can sacrifice as much salary as they like into their pension without paying National Insurance Contributions (NICs). Employers also save NICs on those amounts. But from April 2029, that perk shrinks: only the first £2,000 of sacrificed contributions will stay NICs-free. Anything above that will attract both employee and employer NICs.

Why does this matter?
The government says the cap is designed to protect ‘average earners’. For example:

• On £40,000, sacrificing 5% means no extra NICs for anyone.
• On £50,000, the employee pays £40 NICs; the employer pays £75.
• On £120,000, the employee pays £80; the employer pays £600.

These figures assume default auto-enrolment rates (8% total), but many employees sacrifice more to boost retirement savings, so the real impact could be much bigger.

What happens now?

Don’t panic, as there’s no rush. Employers and employees still have almost four years to enjoy NICs savings. In fact, expect some savvy employees to frontload contributions or sacrifice bonuses before the cap kicks in.

Will salary sacrifice still be worth it?

Absolutely - up to £2,000, it’s still a win. Plus, these schemes offer flexibility. For example, employees can reduce contributions before maternity leave to boost take-home pay, which matters for calculating statutory pay.

The employer challenge

Here’s where it gets tricky. For employers, the NICs bill will rise, especially if you’ve been sharing NICs savings with staff via extra pension contributions. Unless you change your scheme, you could end up paying NICs and funding those extras. Adjusting arrangements means contract changes and staff consultation, which can affect morale and retention.

Ironically, employers who’ve been less generous with NICs savings have less to lose.

What are the options?

• Boost employer contributions instead of requiring minimum employee contributions—these remain NICs-free. But this could squeeze pay rise budgets.
• Balance priorities: younger employees often prefer higher take-home pay over pension perks.

Plan ahead

The good news? You’ve got time. The rules don’t bite until 2029, so review your schemes, budget for the change, and decide what matters most: pensions or pay. And with the timing close to the next general election, some employers may wait to see if a new government reverses the policy.

Bottom line: Salary sacrifice isn’t going away, but the game is changing. Start planning now to avoid surprises later.

For help with reviewing salary sacrifice arrangements, speak to Doug Mullen or Lauren Broderick.