Salary-Sacrifice Pension Cap Explained (£2,000 from 2029)

How salary sacrifice works today

With salary sacrifice, you agree to give up part of your gross salary, and your employer pays it straight into your pension instead. Because the money never counts as salary, you save income tax and National Insurance on it — and employers save their NI too.

That National Insurance saving is what makes salary sacrifice more generous than ordinary pension contributions, which only save income tax.

What is changing in 2029

From 6 April 2029, the National Insurance relief on salary-sacrifice pension contributions is due to be capped at £2,000 per employee per year.

You will still be able to sacrifice more than £2,000 into your pension, and you will still get income tax relief on the full amount — but contributions above £2,000 will no longer save National Insurance.

• Income tax relief: unchanged — still applies to your full contribution.
• National Insurance relief: capped at £2,000 of sacrificed contributions per year.
• Employer NI savings above the cap are also affected.

Who is most affected?

People sacrificing large amounts — typically higher earners making big pension contributions through salary sacrifice — will feel the change most. For someone sacrificing only a few thousand pounds, the impact is smaller.

The income tax advantage of pensions remains intact for everyone, so pensions stay highly tax-efficient even after the cap.

What you can do

There is time to plan: the cap does not start until April 2029. If you make large salary-sacrifice contributions, it is worth reviewing your strategy closer to the date.

Use our Pension Contribution Calculator to model your contributions and see the combined effect of tax relief and any National Insurance saving on your real cost.