# Salary sacrifice pension and the 2029 NI cap

> Researched and written by Shiv Patel, chartered accountant (ICAS), with AI drafting assistance. Every figure is checked against the cited source. Guidance, not personal advice.
> Published: 2026-08-20 · Last reviewed: 2026-08-20 · Tax year: 2026/27
> Canonical: https://www.surplusapp.co.uk/guides/salary-sacrifice-explained

A salary sacrifice pension swaps part of an employee's cash pay for an employer pension contribution, reducing taxable income. From 6 April 2029 only the first £2,000 a year keeps the National Insurance exemption [https://www.gov.uk/government/publications/salary-sacrifice-reform-for-pension-contributions-effective-from-6-april-2029/salary-sacrifice-reform-for-pension-contributions, 2029/30].

## How can I work out the impact on me?

The usual way to work this out is with a salary sacrifice calculator. Put in your salary, choose how much you want to sacrifice, and it shows the tax and National Insurance saving.

The problem is that most are based on the rules as they stand today. Most calculators effectively assume current National Insurance rates. From April 2029, that will no longer be true once salary sacrifice pension contributions go above £2,000 a year.

## How does salary sacrifice actually work?

Payments into pension schemes sit on HMRC's list of benefits that are exempt from both tax and National Insurance contributions [https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye, 2026/27].

Pension contributions made this way reduce Income Tax and National Insurance by lowering the pay those charges are worked out on. HMRC says it plainly - a sacrifice "may reduce the cash earnings on which National Insurance contributions are charged" [https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye, 2026/27].

## A worked example: £40,000 salary, £2,400 a year sacrificed

The figures below use the 2026/27 rates for England, Wales and Northern Ireland: a Personal Allowance of £12,570 and basic rate Income Tax at 20% on taxable income from £12,571 to £50,270 [https://www.gov.uk/income-tax-rates, 2026/27], with employee Class 1 National Insurance at 8% between the £12,570 primary threshold and the £50,270 upper earnings limit [https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027, 2026/27]. The employee earns £40,000, sacrifices 6% of it - £2,400 a year - and has no student loan.

| Annual figures, 2026/27 | No sacrifice | £2,400 sacrificed |
| --- | --- | --- |
| Contractual salary | £40,000.00 | £37,600.00 |
| Into the pension by sacrifice | £0.00 | £2,400.00 |
| Pay charged to Income Tax and NI | £40,000.00 | £37,600.00 |
| Taxable pay after the Personal Allowance | £27,430.00 | £25,030.00 |
| Income Tax at 20% | £5,486.00 | £5,006.00 |
| Employee National Insurance at 8% | £2,194.40 | £2,002.40 |
| Take-home pay | £32,319.60 | £30,591.60 |

£2,400 reaches the pension and take-home pay falls by £1,728.00 - the £2,400 less the £480.00 of Income Tax and £192.00 of employee National Insurance no longer charged on it.

The employer side moves too. Employer Class 1 National Insurance runs at 15% on earnings above a £5,000 secondary threshold [https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027, 2026/27], so the employer's charge on that £2,400 falls by £360.00. Some employers pass part of that back into the pension and some do not, which is a scheme rule rather than a tax rule.

## What changes on 6 April 2029?

This is the part most calculators currently leave out. HMRC's policy paper states that the measure "will take effect from 6 April 2029", and that from then "earnings forgone pursuant to a salary sacrifice scheme above the £2,000 contribution limit for a tax year will be subject to Class 1 primary and secondary National Insurance contributions" [https://www.gov.uk/government/publications/salary-sacrifice-reform-for-pension-contributions-effective-from-6-april-2029/salary-sacrifice-reform-for-pension-contributions, 2029/30]. Primary is the employee's contribution. Secondary is the employer's. Both sides of the arrangement lose the exemption above the cap.

What does not change is the Income Tax half. "The Income Tax relief on employee and employer pension contributions and National Insurance contributions relief on traditional (non-salary sacrifice) employer pension contributions remain unchanged" [https://www.gov.uk/government/publications/salary-sacrifice-reform-for-pension-contributions-effective-from-6-april-2029/salary-sacrifice-reform-for-pension-contributions, 2029/30]. A sacrificed contribution stays outside Income Tax at the marginal rate. Only the National Insurance leg above £2,000 is affected.

Applied to the worked example: of the £2,400 sacrificed, £2,000 stays outside National Insurance and £400 does not. The employee's National Insurance relief on that sacrifice moves from £192.00 to £160.00, and the employer's from £360.00 to £300.00. The £480.00 of Income Tax relief is untouched.

## Does salary sacrifice reduce student loan repayments?

Student loan repayments are worked out on "the amount you earn (including things like bonuses and overtime) before tax and other deductions" [https://www.gov.uk/repaying-your-student-loan/what-you-pay, 2026/27]. A sacrifice is not one of those deductions - it reduces the entitlement to cash pay itself [https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye, 2026/27] - so the earnings figure the repayment is calculated from is the post-sacrifice one.

On the worked example, with a Plan 2 loan repaid at 9% of earnings over £29,385 a year [https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027, 2026/27], both £40,000 and £37,600 sit above the threshold, so the whole £2,400 comes out of the 9% band: £216.00 less repaid across the year, and a take-home reduction of £1,512.00 rather than £1,728.00. The balance is not written off. It is repaid more slowly.

## What about sacrificing a bonus?

A bonus can be sacrificed in exactly the same way as regular salary, as long as the employer allows it and the choice is made before the bonus becomes due - a sacrifice works by changing the entitlement before the payment arises [https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye, 2026/27]. Instead of taking the bonus as cash and paying tax on it, the money goes straight into the pension.

The main limit is the pension annual allowance, currently £60,000 for most people [https://www.gov.uk/tax-on-your-private-pension/annual-allowance, 2026/27], counting contributions made by both employee and employer. Unused allowance can also be carried forward from the previous three tax years [https://www.gov.uk/tax-on-your-private-pension/annual-allowance, 2026/27].

Say you're earning £80,000 and receive a £10,000 bonus. Taken as cash, most of it sits in the 40% Income Tax band [https://www.gov.uk/income-tax-rates, 2026/27] and the 2% employee National Insurance band above the upper earnings limit [https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027, 2026/27] - so, very roughly, £5,800 is kept and £4,200 goes in tax and National Insurance. Sacrifice the £10,000 instead and the full amount can go into the pension, subject to the annual allowance. That is why bonus sacrifice is common among higher earners.

From April 2029, the calculation changes slightly. The Income Tax advantage of putting the bonus into a pension stays, but only the first £2,000 of salary or bonus sacrificed each year escapes National Insurance [https://www.gov.uk/government/publications/salary-sacrifice-reform-for-pension-contributions-effective-from-6-april-2029/salary-sacrifice-reform-for-pension-contributions, 2029/30]. Anything above that is subject to employee and employer National Insurance.

So for a higher-rate taxpayer, the big benefit remains the 40% Income Tax saving. The current 2% National Insurance saving on earnings above the upper earnings limit largely disappears from April 2029 once the £2,000 allowance is used.

## How this looks in Surplus

Surplus reads a sacrifice where it actually shows up: on the payslip. The payslip analyser models Income Tax, National Insurance, pension and student loan from the payslip's own figures, so the deductions are modelled against post-sacrifice pay rather than a headline salary, and the line-by-line comparison shows which deductions moved and which did not.

The bank side is separate. Surplus connects to UK current accounts and credit cards through read-only Open Banking provided by Yapily, so the take-home figure it works from is the one that actually arrived rather than a projection. Pension accounts are not connected - the pension leg of a sacrifice is visible only through what the payslip reports.

Every figure above is cited to its source where it appears and re-verified against the source whenever UK rates move.

## Sources
- Salary sacrifice for employers - GOV.UK — https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye (accessed 2026-08-20)
- Salary sacrifice reform for pension contributions effective from 6 April 2029 - GOV.UK — https://www.gov.uk/government/publications/salary-sacrifice-reform-for-pension-contributions-effective-from-6-april-2029/salary-sacrifice-reform-for-pension-contributions (accessed 2026-08-20)
- Income Tax rates and Personal Allowances - GOV.UK — https://www.gov.uk/income-tax-rates (accessed 2026-08-20)
- Rates and thresholds for employers 2026 to 2027 - GOV.UK — https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027 (accessed 2026-08-20)
- Repaying your student loan: what you pay - GOV.UK — https://www.gov.uk/repaying-your-student-loan/what-you-pay (accessed 2026-08-20)
- Tax on your private pension contributions: annual allowance - GOV.UK — https://www.gov.uk/tax-on-your-private-pension/annual-allowance (accessed 2026-08-20)