| Current salary sacrifice rules allow full Income Tax and National Insurance efficiency | National Insurance relief will be restricted above £2,000 annually from April 2029 | Forward planning could maximise pension contributions under existing rules |
During the Budget last November, Rachel Reeves confirmed that from 6 April 2029, the National Insurance (NI) advantages of salary sacrifice will be restricted. Salary sacrifice is an effective pension planning tool, particularly for higher earners, where employers pay part of a salary directly into an employee’s pension, meaning Income Tax or employee NI is not payable on that amount.
The employer also saves on NI–a saving often shared through additional pension contributions. It can also reduce individuals’ taxable income for thresholds including the higher-rate tax band, the High Income Child Benefit Charge and the tapering of the personal allowance above £100,000.
So, what’s changing?
– Only the first £2,000 per year of pension contributions made via salary sacrifice will be exempt from NI from April 2029
– Any amount above this will still receive Income Tax relief, but NI will be payable
– Contributions made between now and 2029 continue to benefit from full NI efficiency, making this a valuable window of opportunity.
Action required?
Although the change is a few years away, it does create a planning opportunity. Depending on affordability, you may choose to increase the amount of your salary to sacrifice, use bonus sacrifice, or bring forward planned contributions.
There’s no need to make hasty decisions, but it’s important to be aware that the rules are set to become less generous. Salary sacrifice is just one element of a wider, long-term strategy. Reviewing your overall position now can help ensure your pension contributions are as tax efficient as possible, affordable and aligned with your broader retirement goals.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored advice and is for guidance only. Some rules may vary in different parts of the UK.
