Chancellor Rachel Reeves' Budget announcement has confirmed a significant change to the way salary sacrifice pension contributions will be treated in the United Kingdom. From April 2029, workers who use salary sacrifice to boost their pensions will only receive National Insurance (NI) relief on the first £2,000 (approximately $2,600) of sacrificed income each year. The measure marks one of the most substantial reforms to pension tax treatment in over a decade.
Salary sacrifice allows an employee to voluntarily reduce their gross salary in exchange for a non-cash benefit. In most cases, this benefit is an additional employer payment into their pension. Because the sacrificed salary is not counted as earnings, both employee and employer save on National Insurance contributions, offering greater value compared to standard pension contributions.
