As expected, the Chancellor announced a cap on the amount an employee can contribute to their Workplace Pension, which is eligible for employer and employee National Insurance (NI) relief via Salary Sacrifice, in the Government Budget delivered on 26th November 2025. The cap is to be introduced from April 2029 and only the first £2,000 of employee pension contributions will be granted NI relief.
We have answered some of the key FAQs as a result of the change below.
As expected, the Chancellor announced a cap on the amount an employee can contribute to their Workplace Pension, which is eligible for employer and employee National Insurance (NI) relief via Salary Sacrifice, in the Government Budget delivered on 26th November 2025. The cap is to be introduced from April 2029 and only the first £2,000 of employee pension contributions will be granted NI relief.
We have answered some of the key FAQs as a result of the change below.
Salary Sacrifice is where an employee agrees to contractually exchange part of their salary for a non-cash benefit; in this case Workplace Pension contributions. Essentially, employee pension contributions are deducted from gross pay, meaning the employee saves both income tax and NI on the value of what they contribute to their Workplace Pension Scheme. As Salary Sacrifice reduces taxable income, the employer also saves NI on the value of the employee pension contribution.
The guidance from HMRC suggests that employees will still be able to make Salary Sacrifice contributions above the £2,000 cap, however the balance above the cap will be subject to employee and employer NI. Further guidance is expected in due course.
For those employees wishing to contribute over £2,000 they will no longer save National Insurance on the excess, meaning part of their pension contributions will cost more. For higher and additional rate taxpayers this will only be a 2% increase, however if a basic rate taxpayer wishes to contribute over £2,000 the cost will increase by 8%.
As the guidance suggests employees will still be able to make Salary Sacrifice contributions above the cap, the employee should retain ability to reduce taxable income to become eligible for Child Benefit, Tax Free Childcare or to mitigate the tapering of their Personal Allowance.
There will be a reduction in the amount of National Insurance savings for businesses if they have employees contributing over £2,000.
For HR and Payroll teams, they will need to assess and amend their payroll software to capture the different tax treatments of employee pension contributions once further guidance is provided by HMRC.
For those employers currently paying their NI savings as additional employer pension contributions, they will have to consider the level at which this continues from April 2029.
Operating Salary Sacrifice pensions will still be a sensible solution for most organisations. According to the Government, the cap will not be breached by 74% of taxpayers who are contributing to their Workplace Pension via Salary Sacrifice. The employer National Insurance savings can still be significant for many organisations.
If you have not yet introduced Salary Sacrifice and would like to understand the potential savings and how to introduce a successful and compliant arrangement, please get in touch with the Bartlett Employee Benefits team.
Given the change is not set to take place until April 2029 immediate action is not required. We would recommend speaking to your payroll software provider in due course to understand how to capture the different National Insurance reliefs.
The table shows a range of current NI savings for employees and employers due to Salary Sacrifice. It also shows the value of lost savings as a result of the cap. The value of National Insurance savings will vary based on the employee’s salary and the rate of contribution they make.
