Changes to Salary Sacrifice for pension benefits
The Chancellor announced in the November 2025 Budget that there will be changes to the rules on salary sacrifice for employer pension contributions. This may also be referred to as “salary exchange”, “bonus sacrifice” or “bonus exchange”.
What is salary sacrifice?
Salary sacrifice is an agreement between you and your employer, where you agree to give up some of your salary, in return for a non-cash benefit paid for by your employer – for example, pension contributions, workplace nurseries or childcare vouchers.
The non-cash benefit impacted by this change is an employer pension contribution.
Employer pension contributions are exempt from both employer and employee national insurance contributions (NICs). This means that if you give up some salary and put it into your pension instead (salary sacrifice), you save on your NICs. This means you could either take home more pay or boost your pension without reducing your take-home pay.
The % saved depends on the NICs rates you pay.
| % of sacrificed salary saved | |
| Basic Rate Taxpayer | 8% |
| Higher or Additional Rate Taxpayer | 2% |
What are the proposed changes?
From 6th April 2029, both employee and employer NICs will apply to the amount of salary sacrifice for employer pension contributions more than £2,000 per year.
Does this mean employees can only sacrifice £2,000 per year for employee pension contributions?
No, employees can still sacrifice more than £2,000 for employer pension contributions, but both they and their employer will pay NICs on the amount above £2,000.
This is an important distinction, as salary sacrifice can result in some employees becoming eligible for means-tested benefits, such as child benefit or free childcare hours. This can also mean that they avoid losing their income tax personal allowance, which tapers to zero for those earning between £100,000 and £125,140 per year.
Salary sacrifice can mean that higher and additional rate taxpayers saving in Aviva workplace personal pensions do not need to claim additional income tax relief through an end of year tax return. Everyone using salary sacrifice automatically receives full pensions tax relief.
FAQs
What about salary sacrifice for other benefits, such as electric cars? Show more Show less
How much is it going to cost me? Show more Show less
From 6 April 2029, you may pay more in employee National Insurance Contributions (NICs) if you sacrifice more than £2,000 of salary or bonus for employer pension contributions.
A single £2,000 annual threshold applies to all salary and bonus sacrificed in a tax year. With the current NIC rates, this means that:
- If you are a basic rate taxpayer, you pay NICs at a rate of 8%.
- If you are a higher or additional rate taxpayer, you pay NICs at a rate of 8% up to £50,270 per year (£4,189 per month) and at 2% on earnings above this.
The table below shows the extra NICs you would pay each year based on different salaries and sacrifice amounts. Figures assume 2025/26 NIC rates and thresholds remain unchanged.
Additional employee NICs per year payable from 6th April 2029
| Salary | % of Salary Sacrificed | ||||
| 4% | 5% | 6% | 7% | 8% | |
| £25,000 | £0 | £0 | £0 | £0 | £0 |
| £30,000 | £0 | £0 | £0 | £8 | £32 |
| £40,000 | £0 | £0 | £32 | £64 | £96 |
| £60,000 | £8 | £20 | £32 | £44 | £56 |
| £80,000 | £24 | £40 | £56 | £72 | £88 |
| £100,000 | £40 | £60 | £80 | £100 | £120 |
| £120,000 | £56 | £80 | £104 | £128 | £152 |
| Salary | % of Salary Sacrificed | ||||
| 9% | 10% | 12% | 15% | 20% | |
| £25,000 | £20 | £40 | £80 | £140 | £240 |
| £30,000 | £56 | £80 | £128 | £200 | £320 |
| £40,000 | £128 | £160 | £224 | £320 | £480 |
| £60,000 | £68 | £80 | £104 | £140 | £216.20 |
| £80,000 | £104 | £120 | £152 | £200 | £280 |
| £100,000 | £140 | £160 | £200 | £260 | £360 |
| £120,000 | £176 | £200 | £248 | £320 | £440 |
Some employees choose to adjust the amount they sacrifice for employer pension contributions, so their take-home pay stays the same as before. This increases the amount paid into their pension by the employer, at no extra cost to the employee.
From 6th April 2029, it will be this higher level of salary sacrifice that will be used to calculate any additional NICs due from both the employee and employer.
An example is shown below:
| No Salary Sacrifice | 10% Sacrifice NICs saving taken as additional pay | Sacrifice adjusted to keep take home pay the same | |
| Gross Salary | £50,000 | £45,000 | £44,444.44 |
| Salary Sacrifice Amount | £0 | £5,000 | £5,555.56 |
| Income Tax p.a. | £6,486 | £6,486 | £6,374.89 |
| Employee NICs p.a. | £2,994.40 | £2,594.40 | £2,549.96 |
| Employee Pension Contribution | £5,000 | £0 | £0 |
| Net Annual Income | £35,519.60 | £35,919.60 | £35,519.60 |
| Employer Pension Contribution | £0 | £5,000 | £5,555.56 |
| Additional Take Home Pay 2025/26 | £0 | £400 | £0 |
| Additional Employee NICS 2029/30* | £0 | £240 | £284.44 |
*Assumes 2025/26 thresholds remain, as currently planned
If I reduce the amount I sacrifice for employer pension contributions to £2,000, will I avoid the NICs increase? Show more Show less
No. If you reduce your salary sacrifice amount, your gross pay will go up by the same amount. This pay will be liable for both income tax and NICs.
You could receive income tax relief by making a pension contribution from your pay, but this amount would remain liable for NICs.
Can I change the amount I sacrifice for employer pension contributions? Show more Show less
The government has not introduced any new rules to prevent changes to salary sacrifice in the run up to 6th April 2029, or after the new rules come in.
Unlike salary sacrifice for some other benefits, HMRC allows changes to salary sacrifice for employer pension contributions at any time.
You should be aware that employers may restrict when changes to salary sacrifice can be made for administrative reasons.
Before making any change to the amount you sacrifice for employer pension contributions, you should really think about:
- Whether you can afford any change.
- The impact any change could have on your pension income in retirement.
- The impact that any change might have on means-tested benefits or the income tax you will pay.