Key takeaways 

The salary sacrifice cap 2029 could change how much employers pay in National Insurance, and many HR teams are already thinking about what this means in practice. Here’s the big picture: 

  • From April 2029, National Insurance relief on pension salary sacrifice will be capped at £2,000 per employee each year, raising costs above that level 
  • Over half of employers expect higher wage bills, with large organisations and sectors like information and communication, manufacturing and finance most affected 
  • Employers can prepare now by modelling future costs, reviewing their use of salary sacrifice and planning how to manage higher National Insurance bills without hurting employee benefits

What is the salary sacrifice cap and when does it start? 

Salary sacrifice is a tax-efficient way for UK employers to offer pensions and other benefits. A planned change could increase employment costs for organisations from April 2029. 

In the Autumn Budget 2025, Chancellor Rachel Reeves announced that National Insurance relief on pension salary sacrifice will be capped at £2,000 per employee each year from that date. 

Above this limit, employers will pay National Insurance on the extra amount. 

 

What is salary sacrifice and how does it cut National Insurance costs? 

Salary sacrifice means employees give up part of their gross pay in return for a benefit, such as a pension contribution. This lowers income tax for employees and cuts National Insurance Contributions (NICs) for both employees and employers. 

With pension salary sacrifice, the employer pays the sacrificed amount into the employee’s pension. Both sides save on NICs, which is why many organisations use this as part of their reward package. 

 

Why should employers and HR teams care about changes to salary sacrifice? 

From April 2029, employers that use salary sacrifice for pensions will pay more NICs on any amount above £2,000 per employee each year. 

To understand the likely impact, we asked employers about this in the CIPD’s Labour Market Outlook Winter 2026.

 

Will the salary sacrifice cap increase employer costs? 

Yes. Just over half of employers (51%) expect the cap to raise their wage bill from April 2029. 

Large organisations (250+ staff) are much more likely to expect higher costs (70%) than smaller employers with 2 to 249 employees (39%). This is because salary sacrifice is more common in larger workplaces. 

The sectors most likely to expect higher costs are: 

  • Information and communication (75%) 
  • Manufacturing (72%) 
  • Finance and insurance (69%) 
  • Construction (68%) 

Hotels, catering and restaurants (37%) and arts, entertainment and recreation (31%) are less likely to expect an impact, as they use salary sacrifice less. 

Around 23% say the change will not affect them because they do not use salary sacrifice for pension contributions. A further 26% say it’s too early to tell. 

 

How might employers respond to higher National Insurance costs? 

Among the 974 employers who expect higher costs, the most common planned responses are: 

  • Raising prices (33%) 
  • Slowing future pay rises (30%) 
  • Cutting spending on employee benefits (26%) 

Construction (56%), retail (44%), arts, entertainment and recreation (43%), and manufacturing (43%) are most likely to pass costs on to customers. 

Wholesale and real estate (46%), retail (44%), and legal, accounting and consultancy (41%) are most likely to slow future pay growth. 

Arts, entertainment and recreation (36%), legal, accounting and consultancy (35%), and hotels, catering and restaurants (34%) are most likely to cut benefits spend. 

Voluntary sector employers are most likely to reduce headcount or hire fewer staff (38%). Public sector employers are also more likely to take this approach (29%). 

 

What should employers and HR teams do now? 

2029 is still some way off, and the cap may not happen at all. Even so, it makes sense to prepare now. People professionals should: 

  • Reassure leaders. Salary sacrifice will still save money overall, even with the cap. 
  • Review your approach. If you do not yet use salary sacrifice for pensions, now is a good time to explore it. 
  • Model the costs. Estimate what the cap could cost your organisation in 2029. If you expect to raise prices, it’s easier to start now and do this gradually over the next few years than all at once after April 2029. 
  • Tell employees about the window. Employees can still increase pension contributions in a tax-efficient way before the cap starts. 
  • Think about pay gap reporting. Some higher earners use salary sacrifice to reduce reported pay, often to avoid the High Income Child Benefit Charge. This has helped lower some employers’ gender pay gaps. From 2029, the cap may limit this, which could push reported pay gaps up. 
  • Focus on performance and productivity. High-performing organisations are better placed to absorb new costs. HR and reward teams can support this through good job design, management, development, reward and recognition. 

 

The bigger picture for employers 

The full CIPD Labour Market Outlook Winter 2026 report covers hiring plans, pay expectations and redundancy rates across sectors. 

Read the report

 

The CIPD’s Labour Market Outlook Winter 2026 survey ran from 18 December 2025 to 17 January 2026. It was carried out online. The total sample was 2,028 employers, weighted to reflect UK employer size and sector. 

Salary sacrifice cap 2029: employer FAQs