As part of budget 2025, the Chancellor of the Exchequer Rachel Reeves has announced that earnings sacrificed for increased employer pension contributions will now be subject to National Insurance contributions.
Any contributions over an annual £2,000 threshold will be subject to NIC from April 2029.
So no immediate impact but significant change for employers to consider and plan for over the upcoming years.
So what is happening?
From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).
Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.
Employers
So from April 2029, Employers will then need to report the total amount sacrificed through payroll.
All non salary sacrifice employer pension contributions will continue to be free of NICs.
Employees
Employees can still contribute as much as they want to their pensions, including via salary sacrifice, and these contributions will still be exempt from Income Tax (subject to the usual limits).
Employees who choose to sacrifice salary to receive Tax Free Childcare or Child Benefit can keep doing so. However, any pension contributions above £2,000 will be subject to both employer and employee NICs.
Most employees making typical pension contributions and their employers will be unaffected.
When will we know more?
All we know at this stage is that the new scheme arrangements will be notified before April 2029.
PAYadvice.UK 26/11/2025