Rumours about changes to salary sacrifice appear before almost every Budget. The 2025 Autumn Budget is no different – but the latest reports have prompted a stronger industry response than usual. Several outlets have suggested the Chancellor is considering a £2,000 limit on the National Insurance advantage of salary sacrifice for pension contributions.
It sounds technical – like something only payroll teams worry about – but if this rumour is accurate, the impact on savers would be immediate. Many employees would see their take-home pay fall, employers would face higher payroll costs, and anyone contributing meaningfully to their pension would find saving noticeably more expensive. Not only that, but this adjustment to the NI-efficient threshold of salary sacrifice would cut directly across the pension improvements the Government is trying to achieve elsewhere.
In this article, I want to explain what the rumoured cap means, who it affects, and why it risks undoing some of the positive momentum building in the pensions system.
Salary sacrifice works because it is simple and predictable
Salary sacrifice has become a central feature of workplace pensions. Employees give up part of their salary and the employer pays the same amount into their pension. Because the contribution is made before income tax and National Insurance, take-home pay is higher and saving feels easier.
The number of people using salary sacrifice is an elusive figure, but at last count around a third of private sector workers used it. Many employers structure their contributions around it. It encourages good habits in the accumulation phase, which is essential for long-term adequacy.
That simplicity is one of the few things in pensions that most people understand and trust.
What a £2,000 cap would mean
The rumour suggests the Chancellor may set a £2,000 NI-efficient threshold for salary sacrifice each year.
In practical terms, this means any pension contribution above that level would attract employee and employer National Insurance. Saving would become more expensive for both. Someone contributing meaningfully to their pension – either through personal choice or employer match – would feel an immediate reduction in take-home pay.
This change would not affect everyone equally. Auto-enrolment minimum payers would barely notice it. The people who would feel it most are those already attempting to save enough for a reasonable retirement.
Read more: Will the Government Slash Pensioners’ Tax-Free Cash? The Reality Behind the Rumours
This reform contradicts the Government’s own pension policy
What troubles me most is how at odds an NI-efficient threshold feels with the rest of the pensions agenda. We currently have a set of reforms designed to strengthen schemes, increase scale, improve governance, and help savers build larger, more reliable pots.
The Pension Schemes Bill, the value-for-money framework and the work of the Pension Commission all push in the same direction – encouraging better outcomes and more confident saving.
An NI-efficient threshold pulls the opposite way. It hits the pension growth phase directly. It makes good behaviour harder. It sends a confusing message at a time when we should be making saving feel more stable and more worthwhile.
People will respond to this – and not always in the right way
Changes that affect take-home pay tend to trigger behavioural shifts. Some employees will reduce contributions. Some employers may reconsider their matching structures. Others will simply become more disengaged because a previously simple system now feels technical and uncertain.
Inertia can help people stay enrolled, but it cannot protect contribution levels. Once contributions fall, they rarely rise again. That creates a long-term adequacy problem that will cost far more to fix than the revenue an NI-efficient threshold might raise.
Read more: What Does Value Really Mean in Pensions? Why Peace of Mind Might Matter as Much as Performance
Stability matters more than a short-term saving
The Government is trying to build a pensions system that people can trust – one that supports long-term saving without needing constant monitoring or financial expertise. Stability is central to this.
A sudden NI-efficient threshold for salary sacrifice would do the opposite. It introduces complexity, increases cost, and makes a widely used saving mechanism feel less reliable. Even if the rumour turns out to be only that, the speculation alone can create anxiety and prompt unintended decisions.
The Government has difficult fiscal choices to make. But making pension saving more expensive risks undermining progress at exactly the moment when confidence and clarity matter most.
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If you want to understand how potential Budget changes could affect your pension scheme or your workforce, Broadstone can help you plan ahead with clear and practical guidance.
