The Autumn Budget revealed both good and bad news on the pension front.

While retirees claiming their State Pension will see payments rise by 4.8% from 6 April 2026, employers and employees will see salary sacrifice capped at £2,000 from April 2029.

Here’s what to expect and how to keep plans on track.

Salary sacrifice on pension contributions to be capped at £2,000 from April 2029

In the 2024 Budget, Rachel Reeves increased National Insurance contributions (NICs) for employers from 13.8% to 15%, while simultaneously reducing the threshold at which they must start paying National Insurance (NI) on employees’ earnings.

In response, many employers turned to salary sacrifice to help soften the impact on revenue and encourage employees to save for a comfortable retirement.

In fact, in 2016/17, salary sacrifice schemes cost the government £2.8 billion – a figure expected to triple to £8 billion by 2030/31 [1].
 
Currently, employees can sacrifice as much salary as they like into their pension without paying NICs.
 
However, from April 2029, only the first £2,000 of sacrificed contributions will remain free of NICs, meaning both employers and employees will have to pay NICs on anything above the £2,000 threshold.

Here’s what that means in practice:

All figures here assume default auto-enrolment rates (8% total) [2].
 
The good news is that you and your employees still have three years and four months to benefit from the current, unrestricted rules.

What it means for employers

When the £2,000 cap comes in, businesses will inevitably see NIC bills increase – this may be a significant uptick.
 
To avoid paying more NICs and funding extra costs, you may wish to change your scheme. This will require changes to arrangements, contracts, and staff consultation – potentially causing short-term disruption.

Ironically, employers who’ve been less generous with NIC savings have less to lose.

To temper changes for your employees, you could consider increasing employer contributions to the workplace pension instead, as employer contributions remain free of NICs.
 
To discuss options that may be suitable for your business and employees with an expert who cares, please get in touch.

What it means for employees

The salary sacrifice cap won’t come into effect until April 2029. And, even after the rule change, pensions will remain a tax-efficient way of saving for retirement.

Most UK taxpayers receive tax relief on pension contributions, up to the Annual Allowance – which currently remains at £60,000, or up to 100% of your earnings, if lower.

Typically, basic-rate taxpayers get a 25% tax top-up at source, while higher- and additional-rate taxpayers can claim the extra relief via self-assessment.
 
Read more: Are you leaving money on the table? How to claim all the pension tax relief you're owed

Salary sacrifice is an extra perk because of the NI savings you get on top of tax relief. You can still use salary sacrifice to boost your retirement savings – but you won't get NI relief on any contributions that exceed the £2,000 cap.
 
So, if you earn £50,000 and pay £3,000 into your pension through salary sacrifice, the £1,000 above the £2,000 cap would be subject to 8% NI, reducing your take-home pay by £80 a year [3].
 
Depending on your circumstances, it may be worth increasing contributions to maximise the current salary-sacrifice benefits. Doing so could reduce your overall adjusted net income and, in turn, could take you out of a higher tax bracket, allowing you to claim Child Benefit, for example.

The State Pension triple lock will boost income for retirees from April 2026

The government's triple lock pledge guarantees that the State Pension will increase by the highest of:

• Inflation, based on the previous September’s Consumer Price Index (CPI) 
• Earnings growth from May to July of the previous year
• 2.5%

In 2025, the average wage increase was 4.8%, beating the other two figures. So, on 6 April 2026, the State Pension will increase by 4.8%.
 
The full new State Pension will increase from £11,973 to £12,547, boosting retirees’ income by up to £575 a year.
 
Planning for a comfortable retirement

According to The Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards, to enjoy a moderate lifestyle in retirement if you’re single, you’ll need an annual income of approximately £31,700, while couples will need £43,900 [4].
 
If you qualify for the full annual State Pension and are single, you’d need a pension pot worth between £303,000 and £490,000 to fund a moderate retirement lifestyle [5].
 
How much is “enough” for you may differ and will also depend on how you draw on your savings in retirement.

Whatever your stage of life, it’s important to start planning and saving early.

Get in touch

We provide continuous support and guidance to help your employees understand the value of their workplace pension plan and adapt as circumstances change.

Our dedicated support team is always available to answer questions and provide expert advice, ensuring employees feel supported every step of the way.
 
To find out more about how we can support you and your employees today and in the future, email [email protected] or call us on 0800 048 0150.

Please note

The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.
All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
 
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
 
Workplace pensions are regulated by The Pensions Regulator.