Changes that will cap the salary sacrifice on employer pension contributions at £2,000 a year have passed into law, as the National Insurance Contributions Act received Royal Assent yesterday (29 April), alongside the Pension Schemes Act.

From 6 April 2029, the National Insurance (NI) savings on salary sacrifice for pension contributions will be limited – representing a reduction in take-home pay for those affected.

The salary sacrifice cap was announced in the 2025 Autumn Budget. However, House of Lords’ amendments to raise the NI cap to £5,000 and exclude basic rate taxpayers were later overturned by the Commons.

Despite these forthcoming changes, research by Barnett Waddingham found that while 62 per cent of workers used salary sacrifice, a similar amount (63 per cent) did not know it was to be limited from 2029.

Meanwhile, 9 per cent of workers reported not knowing what salary sacrifice is, and one in five (20 per cent) believed it can only be used for pension contributions – unaware that it can also be used on other workplace benefits such as childcare vouchers and a company car.

Barnett Waddingham head of DC pensions, Mark Futcher, commented: “For a benefit so widely used, most people are still using salary sacrifice on autopilot without knowing what’s going on under the bonnet. For something that can make a big difference to people’s long-term savings, that gap really matters.

“Adding a cap, regardless of the amount, adds another layer of fine print to a system that already feels a bit opaque for most people. And when the rules become harder to understand, people are more likely to step back than engage – a risk we can’t really afford to take at a time when retirement adequacy is already under pressure.

“There’s a balance to strike here. Salary sacrifice works best when it’s simple for workers to understand, and easy for employers to run. If that balance tips too far towards complexity, there’s a risk a well-used and effective benefit becomes less accessible than it should be.”

Commenting on the changes, AJ Bell head of public policy, Rachel Vahey, said anyone exchanging an amount of salary above the £2,000 a year threshold for a pension contribution “will be hit hard, seeing their NI bill increase whilst their take-home pay falls”.

“This feels a counterintuitive move,” she added, “given the government’s supposed mission to galvanise the nation into saving for their financial futures. Many may instead feel it sends a signal that pension tax advantages are politically up for grabs, casting a shadow over the incentive to save. It could discourage some from saving as much for their retirement, leaving them worse off later in life.”

Analysis from AJ Bell revealed the effect of the changes on employees’ pay packets and the extra NI bill to employers per year.

“Controversially, the biggest impact of the change will be on those earning between £45,000 and £50,000, as their take home pay decreases more than others,” Vahey said.

“This is due to NI contributions dropping from 8 per cent on earnings between £12,570 and £50,270 to 2 per cent above that threshold. Any excess over the £2,000 cap will be charged at 8 per cent for those earning just below £50,000, while those earning above £50,000 pay only 2 per cent.”

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