06 May 2026
The National Insurance Contributions (Employer Pensions Contributions) Act 2026 gained Royal Assent on 29 April. The bill is now an Act of Parliament. This empowers the Government to apply an annual cap of £2,000 on National Insurance Contributions (NICs) savings from salary sacrifice pension arrangements from April 2029.
First announced in the Autumn Budget 2025, the bill faced many amendments, but ultimately, these considerations were rejected.
The cap will affect 3.3 million workers, and analysis has suggested that workers earning between £45,000 and £50,000 will see the biggest fall in take-home pay, as contributions above the £2,000 cap are subject to an 8% NICs rate. Comparatively, higher earners above £50,000 will only pay 2% NICs on the excess, which is markedly different.
Employers will be affected as payroll systems will need to be adjusted to apply the charge to contributions above the limit. Details on how this will work in practice are yet to be revealed and we would expect some sort of consultative process from HMRC to come in due course.
The National Insurance (NI) thresholds have also been frozen until the 2030/31 tax year. This is commonly referred to as fiscal drag, or a ‘stealth tax’, meaning that as employee earnings increase, the more money drawn into a taxable bracket. The combination of this, and the introduction of the cap, would likely result in a big reduction in disposable income for people earning mid-range salaries.
As a result, the cap could cause significant gaps in future pension earnings for mid-earners and higher earners. It creates new, and complex rules that could discourage pension saving which would seemingly undermine the Government’s aim to help worker’s retirement savings grow. However, despite the new cap, pensions still remain one of the most efficient ways to save on tax.
The cap is taking effect in April 2029; therefore, workers and employers have a little under three years to take advantage of current NICs savings. Advisers recommend increasing pension contributions via salary sacrifice now and is especially the case where employers match contributions.
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