How does the Autumn Budget 2025 impact Salary Sacrifice?

As anticipated, new measures were introduced in the Autumn Budget to cap the amount of money people can sacrifice from wages for their pensions without paying National Insurance at £2,000 per year.

Currently there is no cap (but other restrictions can apply); and the government plans to introduce the cap from April 2029.

There are no changes to salary sacrifice deductions for Cycle to Work scheme or electric vehicles which was reportedly considered.

Brief guidance issued confirms that:

• Employer pension contributions will continue to be exempt from employer and employee National Insurance Contributions (NICs)
• All member pension contributions (including those made through salary sacrifice) will continue to be exempt from Income Tax
• Employee pension contributions above £2,000 per year may still be made via salary sacrifice, but will be subject to employer and employee NICs
• The annual allowance remains at £60,000 per tax year (the Tapered Annual Allowance and Money Purchase Annual Allowance also remain the same)

The £2,000 cap will impact workers contributing 5% (gross) into their workplace pension who earn over £40,000 (if contributions are based on their whole basic salary) or £47,000 (if their contributions are based on their ‘qualifying earnings’).

Employees pay 8% NICs on earnings above £12,750 and 2% NICs on earnings above £50,270. Therefore, the cap will a larger impact on staff earning between £40,000 - £51,000.

Someone earning £50,000 and sacrificing 5% of their basic salary would pay an additional £40 a year in NICs and their employer would pay an extra £75.

The Office for Budget Responsibility (OBR)  estimates that many employers will revert back to using ‘relief at source’ for deducting employee pension contributions; however, this would result in higher-rate taxpayers needing to complete self-assessment tax returns again.

The biggest impact is on employers:

• Employers will have to report the total amount of pension contributions sacrificed through their payroll software. Currently, this would be difficult and complex based on current payroll software.
  • It will also make the communication and reporting more difficult.
• Employers already pay NICs at 15% on employee income above £5,000 per year. Following the changes in 2029, contributions made above £2,000 by an employee will also be subject to 15% employer NICs.
  • The cost of this will depend on the typical earnings of your workforce and the minimum pension contributions for their workplace pension.

The delay for introducing this until April 2029 is welcome given the current issues with implementing and reporting on this.

The Society of Pension Professionals (SPP) has recently issued a paper exploring the implications of limiting NIC relief on pension contributions paid by salary sacrifice.

Important information

This document provides general guidance on salary sacrifice for workplace pensions. It is not a substitute for legal, tax, or HR advice and should not be relied upon as such. Employers should obtain independent employment-law advice before making contractual changes and ensure compliance with National Minimum/Living Wage rules, statutory pay calculations, and benefit/insurance definitions (e.g., “reference salary”). The content reflects UK legislation and HMRC guidance current at 27 November 2025 and may change; future updates may alter the implications described.