What changes in April 2029 and why you should act now
Overview
From 6 April 2029, the government is capping the National Insurance (NI) exemption for workplace pension contributions made through salary sacrifice at £2,000 per tax year.
Right now, every pound you redirect into your pension through salary sacrifice is free from both employee and employer NI. From April 2029, that exemption only applies to the first £2,000. Any salary sacrificed above that threshold will be subject to NI contributions — both yours and your employer’s.
This is a meaningful change for umbrella contractors who use salary sacrifice to boost their pension and reduce their tax bill. The more you currently sacrifice, the more this change will affect you — and the sooner you act, the more you stand to protect.
What Changes, and for Whom
This update applies to umbrella contractors. CIS and other contractor types are paid differently and are not affected in the same way.
| No Salary Sacrifice | Salary Sacrifice | |
| Contract Rate | £100,000.00 | £100,000.00 |
| Employer Costs | -£12,677.50 | -£6,925.90 |
| Employee Costs | -£25,644.43 | -£10,276.05 |
| Salary Sacrifice | — | £42,500.00 |
| Net Pay | £60,378.07 | £38,998.06 |
| Net Pay plus Pension | — | £81,498.06 |
| Benefit | £21,119.98 |
Figures provided for illustrative purposes based on current rates. Individual circumstances will vary.
In this example:
- £42,500 would be contributed directly into the pension through salary sacrifice.
- Because the sacrificed amount brings gross income below the higher-rate tax threshold, only basic-rate income tax at 20% applies.
- The total benefit from one year of salary sacrifice is £21,119.98.
From April 2029, the NI savings on contributions above £2,000 will no longer apply. For someone sacrificing at this level, the financial impact could be significant.
The NI Impact in Detail
Under the new rules:
For employees: Any salary sacrificed above £2,000 will be subject to the prevailing primary NI rate. At current rates, that is 8% for earnings up to the upper earnings limit.
For employers: Secondary Class 1 NICs (currently 15%) will apply to any salary sacrificed above the £2,000 cap.
The combined effect reduces the net benefit of higher salary sacrifice arrangements. The pension contribution itself remains tax advantageous — income tax relief on pension contributions is not affected by this change — but the NI efficiency that makes salary sacrifice particularly valuable for umbrella workers is being curtailed.
Why 2029 Is Closer Than It Looks
Pensions are long-term investments. The NI savings you make today do not just sit in your pension — they have the potential to grow over time.
Let’s take an example. An annualised return of 6% means that a one‑year benefit of £21,119.98, compounding annually, would more than double over a 12‑year period. Each additional year you continue contributing at the current, uncapped level increases your pension further.
Conversely, every year you delay doesn’t just mean losing that year’s National Insurance saving—it also means forfeiting all the future growth that saving could have generated over time.
April 2029 may feel a long way off. But if you are not yet maximising salary sacrifice, or if your current arrangement has not been reviewed recently, the cost of waiting is real and it compounds. Contractors who speak to us now have the most time to benefit from the current rules. Those who wait until 2029 will have lost years they cannot get back.
Don’t Wait Until 2029 to Act
The full NI exemption on salary sacrifice is still in place today. Every month that passes without a review is a month of potential savings that cannot be recovered once the cap takes effect. Further guidance will be published on GOV.UK before April 2029, full details of the legislation are available on the UK government’s official publication on changes to salary sacrifice for pensions.
Speaking to our team now gives you the longest possible runway to benefit. We can help you:
- Confirm whether your current salary sacrifice arrangement is set up to make the most of the existing rules
- Adjust your contribution level before the cap reduces what you can save NI-free
- Explore other tax-efficient options that work alongside your pension strategy
The contractors who benefit most from this window are the ones who move first. If you have not reviewed your arrangement recently, now is the time.
Tax planning is not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Brookson Financial (FCA number 179752) is authorised and regulated by the Financial Conduct Authority. A pension is a long-term investment. The fund value may fluctuate and can go down as well as rise. Your eventual income may depend on the size of the fund at retirement, future interest rates, and tax legislation.
The information in this article is for general informational purposes only and does not constitute financial or legal advice. Readers should seek financial advice before making decisions. Brookson and People2.0 bear no responsibility for the accuracy, legality, or content of third-party sites linked from this article.
