Salary Sacrifice Pensions: Now With Added Mild Irritation (2025 Edition)

For years, salary sacrifice pensions were the closest thing personal finance had to a free lunch. You gave up some salary, your employer popped it into your pension, and - crucially - both of you quietly avoided National Insurance. Everyone won. HMRC looked the other way. Spreadsheets smiled.

Then 2025 happened.

The government announced that from April 2029, only the first £2,000 a year of pension contributions made via salary sacrifice will escape National Insurance. Anything above that still goes into your pension (calm down), but NICs will apply - both employee and employer.

Think of it less as “abolishing salary sacrifice” and more as putting it on a diet. A strict, joyless £2,000-a-year diet.

What actually changed (in plain English)

• Salary sacrifice still works

• Pension tax relief still exists

• NIC relief is now capped at £2,000 per year

• Contributions above that:

  • Attract employee NICs

  • Attract employer NICs

    
    

This is not the end of pensions. But it is the end of pretending salary sacrifice is a magical loophole that nobody noticed.

Let’s model it: Meet Sophie, who did everything “right”

Sophie is 38. She earns £50,000. She salary-sacrifices £5,000 a year into her workplace pension.

Under the new rules:

• £2,000 stays NIC-free

• £3,000 becomes NICable

• 
  

Now the maths (sorry, but it’s quick):

• Employee NIC on £3,000 at 8% = £240

• Employer NIC on £3,000 at 15% = £450

• Total extra NIC cost = £690 per year

  
  

That £690 doesn’t vanish. Someone pays it.

What should people actually do?

Before anyone rage-quits their pension:

1. Check how much you salary sacrifice

   1. If it’s under £2,000 - congratulations, you are completely unaffected.

2. Ask your employer what they plan to do

   1. This change doesn’t bite until 2029, which in HR terms is plenty of time to procrastinate - but eventually decisions will be made.

3. Re-run contribution strategies

   1. Some people may:

      1. Reduce salary sacrifice

      2. Increase personal contributions

      3. Accept the extra NICs and move on with their lives

4. Don’t stop saving

   1. This is a haircut, not an amputation. Pensions are still tax-efficient. They’re just… slightly less smug now.

      
      

Final thought

The £2,000 salary sacrifice NIC cap is a very “modern” policy change: technically precise, emotionally annoying, and guaranteed to make at least one spreadsheet slightly less satisfying.

Salary sacrifice is no longer a cheat code - it’s just a decent feature with a usage limit.

Which, frankly, puts it in the same category as most things in adulthood.

Your next move

This change won’t break pensions, but it will quietly reshape how salary sacrifice works.

Ignoring it is an option.

Understanding it is a better one.

Run the numbers. Ask the questions. And if your spreadsheet starts looking less cheerful than usual, you know where to find me.