Salary sacrifice (optional remuneration arrangements)

FORTHCOMING CHANGE: On 26 November 2025, as part of Budget 2025, it was announced that from April 2029, only the first £2,000 per year of a pension contribution made pursuant to a salary sacrifice arrangement will be exempt from National Insurance contributions (NICs). Any employee contributions through salary sacrifice above £2,000 per year will be subject to both employer and employee NICs, resulting in any excess above £2,000 being treated for NICs purposes in the same way as other employee workplace pension contributions. Employer contributions are unaffected, as is income tax relief. Employers will need to report the total amount of salary sacrificed through existing payroll software, with HMRC committing to engage with stakeholders. HMRC will publish further guidance ‘before April 2029’. The National Insurance Contributions (Employer Pensions Contributions) Bill 2026 will insert a new subsection into section 4 of the Social Security Contributions and Benefits Act 1992 that empowers the government to make regulations providing for sacrificed amounts to be treated as remuneration derived from employment for NICs purposes. See: Policy paper: salary sacrifice reform for pension contributions and National Insurance Contributions (Employer Pensions Contributions) Bill