Salary sacrifice is one of the most widely used pension planning tools available to employees, especially higher earners. The November 2025 Budget confirmed that from 6 April 2029, its National Insurance (NI) advantages will be restricted. While this does not change how pensions work today, it does influence longer-term tax planning and provides a clear window in which current rules remain more favourable.
What is salary sacrifice?
Salary sacrifice is an arrangement where an employee agrees to reduce their salary and in return, their employer pays that amount into a pension scheme. This currently provides three main benefits:
– No Income Tax on the sacrificed amount
– No employee NI on the sacrificed amount
– No employer NI on the sacrificed amount (often shared as extra pension contributions).
Because the sacrificed salary is not treated as pay, it can also help reduce taxable income for thresholds such as:
– Higher-rate and additional-rate bands
– Child Benefit tapering (High Income Child Benefit Charge)
– Personal allowance tapering above £100,000
This is why salary sacrifice is so commonly used in end-of-tax-year planning.
What is changing in April 2029?
From 6 April 2029, the government plans to introduce a cap on the NI advantages of salary-sacrifice pension contributions. Under the new rules:
– Only the first £2,000 per year of pension contributions via salary sacrifice will be exempt from employee and employer NI
– Amounts above £2,000 will still qualify for income tax relief, but NI will be payable on the excess.
This change is designed to limit the NI savings currently enjoyed by those who use large-scale salary sacrifice arrangements, such as high earners or bonus recipients.
The relevance for end-of-tax-year planning
Although the rule change does not take effect until 2029, it has immediate planning relevance because current rules are more favourable than future rules.
For clients who sacrifice more than £2,000 per year into pensions, contributions today and in the coming tax years still attract full NI savings. That means the period between now and April 2029 represents a ‘use it while you can’ window.
In year-end planning terms, clients may wish to consider:
– Bringing forward planned contributions
– Increasing salary sacrifice where affordable
– Using bonus sacrifice while NI efficiency remains uncapped.
Importantly, it is not about rushing decisions, rather it is about being aware that the rules will become less generous over time.
Looking beyond 2025/26
One of the key points about salary sacrifice is that it sits within a multi-year strategy, not just a single tax year. Cashflow Modelling can be invaluable here because it helps you understand:
– Whether you can afford to increase contributions now
– How higher contributions impact take-home pay and lifestyle
– For how long NI-efficient contributions will be beneficial
– How bonus payments or income changes may fit in before 2029
– How pension funding interacts with ISAs, VCTs and charitable giving.
For high earners or those with variable income (such as professionals receiving annual bonuses), reviewing salary sacrifice before the NI cap arrives can support a smoother long-term retirement and tax plan.
In summary
While the salary sacrifice changes do not affect this year’s tax relief, they are highly relevant to tax year-end planning because they create a limited window – from now until April 2029 – where pension contributions via salary sacrifice are more efficient than they will be in future. At S4 Financial we can work with you to plan calmly, make informed decisions and ensure contributions fit within wider retirement goals and household cashflow. Get in touch with us for more information – you can call us on 01276 34932 or email us via hello@s4financial.co.uk.