Salary sacrifice: max out this pension tax break while you can

The UK government will cap national insurance relief on pension salary sacrifice contributions above £2,000 a year from April 2029, prompting calls for workers to maximise the benefit before the rules tighten. Salary sacrifice allows employees to exchange part of their gross pay for employer pension contributions, reducing both income tax and national insurance liabilities [1]. An estimated 7.7 million employees currently contribute to their pension through such arrangements, according to HMRC data [1]. From April 2029, any salary-sacrificed pension contributions exceeding £2,000 annually will no longer be exempt from employer and employee national insurance [1]. HMRC has indicated that 3.3 million of those using the scheme sacrifice more than £2,000 of salary, meaning more than 40% of participating employees will be affected by the cap [1]. Jason Hollands of Bestinvest by Evelyn Partners, a UK wealth management firm with over £68 billion in assets under management, said workers should act now [5][1]. "Taking advantage now really makes sense," Hollands stated [1]. Steve Webb, a former pensions minister and now a partner at consultancy LCP, advised employees to maximise contributions ahead of the deadline. "Anything you can sacrifice before April 2029 is worth a look," Webb said, adding that doing so "is going to be much more NI-efficient than if you do it after" the changes take effect [1]. The financial impact of the cap can be illustrated through a case study prepared by insurer Standard Life. An employee named James, earning £50,000 and receiving a £5,000 pay rise, would currently save £127 in national insurance by sacrificing the full increase into his pension. After April 2029, his NI saving would drop to £67, an additional cost of £60 [1]. The employer would also face £450 in additional costs due to lost NI savings on the contribution [1]. Webb noted that the restriction will affect basic-rate taxpayers significantly. A freedom of information request he made to HMRC revealed that 1.2 million of the employees sacrificing more than £2,000 are basic-rate taxpayers, who pay national insurance at 8%, compared with 2% for higher-rate taxpayers [1]. The government has justified the change by arguing the perk "has disproportionately benefited higher earners" [1]. Hollands emphasised that the window before April 2029 is particularly important for those nearing retirement. "Taking advantage while they can is crucial, particularly if the employer passes on their employer NI saving," he said [1]. The scheme can also help workers avoid the high income child benefit charge, which affects parents earning more than £60,000 annually, by reducing their taxable income below the threshold [1]. Evelyn Partners, which operates the Bestinvest platform, was formed from the 2020 merger of Tilney and Smith & Williamson and rebranded in 2022 [7][6]. The firm agreed to be acquired by NatWest Group in February 2026 in a deal valued at approximately £2.7 billion, subject to regulatory approval [5].