| 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 |
Salary sacrifice is one of the most effective pension planning tools available, particularly for higher earners. It allows you to exchange part of your salary for increased pension contributions, reducing both Income Tax and National Insurance (NI) in the process. The November Budget confirmed that from 6 April 2029, the NI advantages of salary sacrifice will be restricted, making the current rules more valuable in the years ahead.
Under a salary sacrifice arrangement, your employer pays part of your salary directly into your pension. This means you don’t pay Income Tax or employee NI on that amount, and your employer also saves on NI – a saving that is often shared through additional pension contributions. It can also help reduce your taxable income for thresholds such as the higher-rate tax band, the High Income Child Benefit Charge and the tapering of the personal allowance above £100,000.
What’s changing?
From April 2029, only the first £2,000 per year of pension contributions made via salary sacrifice will remain exempt from NI. Any amount above this will still receive Income Tax relief, but NI will be payable. While this change is still a few years away, it creates a clear planning opportunity. Contributions made between now and 2029 continue to benefit from full NI efficiency, making this a valuable window.
For those who can afford it, this may mean increasing salary sacrifice, using bonus sacrifice, or bringing forward planned contributions. The aim isn’t to rush decisions, but to be aware that the rules will become less generous over time.
The big picture
Salary sacrifice works best as part of a wider, long-term strategy. Reviewing your position now can help ensure your pension contributions remain tax-efficient, affordable and aligned with your broader retirement and lifestyle goals.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. Tax legislation and rates can change, and their application depend on individual circumstances.
