Salary-sacrifice pensions over £2,000 face NICs from 2029-30

Employers that fund pensions through salary sacrifice face a new National Insurance contributions boundaryLegislation from the 2029-30 tax yearLegislation. Where an employer pension contribution is provided under optional remuneration arrangements and the employee gives up salary for it, Treasury regulations may treat the amount foregone above a yearly contributions limit as remuneration derived from employmentLegislation, so that primary and secondary Class 1 National Insurance contributions (NICs) apply to the excessLegislation. The first regulations made under the new power must set that limit at £2,000 for a tax yearLegislation.

The charge catches only the excessLegislation. Amounts foregone up to the contributions limit are not treated as remunerationLegislation, so typical salary-sacrifice contributions within the £2,000 allowance attract no NICs under the new rulesLegislation. The £2,000 figure persists for later tax years unless amended by further regulations. Any reduction of the limit for a tax year must go through the affirmative resolution procedure in Parliament.

The mechanism sits on existing NICs architecture. The amount treated as remuneration is treated as earnings for Class 1 purposes, and regulations may prescribe when it counts as paid, provide equivalents of the yearly limit for employees paid weekly or at other intervals, with rounding of no more than £1 over the arithmetical equivalent, and in prescribed cases substitute a different amount or calculation basis. The amendments cover Great Britain through changes to the Social Security Contributions and Benefits Act 1992 and Northern Ireland through mirror changes to the Social Security Contributions and Benefits (Northern Ireland) Act 1992, so the regime applies across England, Wales, Scotland and Northern Ireland.

Income tax treatment does not change. Salary-sacrifice pension contributions remain free of income tax, the existing income tax relief regime for pensions is unaffected, and employee contributions made outside salary sacrifice, which are already subject to Class 1 NICs, are untouched. Existing NICs reliefs, including for employees above State Pension age and the Employment Allowance, continue to apply. Employers with no salary-sacrifice arrangement are not affected; those operating one need to identify employees whose foregone amounts exceed £2,000 a yearLegislation, adjust payroll NICs calculations from April 2029Legislation, and revisit scheme design and employee communications for higher earners while reassuring lower-earning savers within the allowance.

Legal basis: National Insurance Contributions (Employer Pensions Contributions) Act 2026Legislation, amending section 4 of the Social Security Contributions and Benefits Act 1992 and section 4 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.