After the announcement that there will be a cap put on salary sacrifices for pension pots, experts are warning that this could complicate the existing system.
Autumn Budget 2025 – Salary sacrifices for pensions
On Wednesday the 26th of November 2025, Chancellor of the Exchequer Rachel Reeves delivered the Autumn Budget and set out a series of tax-raising measures worth up to £26 billion.
One of the announcements involved changes to salary sacrifices for pensions.
Those who choose to sacrifice part of their salary to invest more into their pension pot will need to be aware that from April 2029, only the first £2,000 of employee pension contributions paid in this way will be exempt from NICs.
Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements, but any employee contributions above this amount will be subject to employer and employee NICs, like other employee workplace pension contributions.
- Employers will need to report the total amount sacrificed through their existing payroll. All employer pension contributions will continue to be free of NICs.
- Employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice.
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Risking complications for retirement savers
The Association of Taxation Technicians (ATT) believe that these changes risk complicating the existing salary sacrifice system, including requiring software updates to reflect the new policy, and could affect those saving for retirement.
Jon Stride, chair of the ATT’s Technical Steering Group, explained, “Salary sacrifice is popular because it delivers immediate tax relief and avoids the need for higher-rate taxpayers to claim additional relief later.
“This announcement will significantly increase the complexity of tax on salary sacrifice pension contributions. There remain a number of practical issues to consider, including the impact on employers and HMRC of delivering the changes.
“Savers will now need to consider the impact of NI charges against their levels of contribution, while employers face recalculating benefit packages and possibly renegotiating employee contracts.
“There are also questions over how non-traditional employment, such as multiple jobs and non-contractual payments like bonuses, will be treated.
“These changes could have a long-term impact on how individuals save for retirement.”
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