The £2,000 pension salary sacrifice cap: why car schemes now matter more

From 6 April 2029, only the first £2,000 an employee sacrifices into their pension each year will be free of National Insurance. Anything above that will attract employee NI and 15% employer NI. For many employers, that quietly removes one of the most reliable NI savings on the payroll.

Electric car salary sacrifice is not caught by the cap. That makes it one of the few remaining ways for employers to reduce their NI bill while giving staff something they genuinely value.

The timing matters. The Autumn Budget lands on Wednesday 28 October 2026. On 9 October, nine benefits providers launched the UK Employee Benefits Alliance (UKEBA) to lobby Government for a stable tax environment for workplace benefits ahead of it. Two of its founding members, The Electric Car Scheme and Tusker, are car salary sacrifice providers. The industry clearly sees benefits policy as live.

This post explains what the pension cap costs employers, how EV salary sacrifice compares, and what is worth doing now.

What the pension cap costs employers

The cap was announced in the November 2025 Budget and is now law. It applies per employee, per tax year, across all their employments. HMRC data suggests around 3.3 million workers currently sacrifice more than £2,000 a year into their pension, so they and their employers will lose part of today’s NI saving.

Take an employee on £60,000 who sacrifices 6% into their pension, which is £3,600 a year. From April 2029:

• The first £2,000 stays NI-free
• The remaining £1,600 attracts 15% employer NI, an extra £240 a year for the employer
• The employee pays 2% NI on that £1,600, an extra £32 a year

£240 per person sounds small. Across 200 employees in a similar position, it is £48,000 a year of NI the business was not paying before. Employers who share their NI saving with staff as an extra pension contribution will also need to revisit that arrangement.

The Government expects the cap to raise around £4.7bn in 2029–30. Much of that comes from employers.

Figures assume employer NI stays at 15% and are illustrative only.

Why EV salary sacrifice still saves employer NI

The pension cap does not extend to car salary sacrifice. The BVRLA confirmed this after the 2025 Budget, and nothing announced since has changed it.

Here is how the saving works. An employee gives up part of their gross salary in exchange for an electric car. The employer pays no employer NI on the sacrificed salary. Because the car is a taxable benefit, the employer pays Class 1A NI on its Benefit-in-Kind (BiK) value instead. For a fully electric car that BiK value is very low: 4% of the list price in 2026/27.

Illustrative example. The same £60,000 employee chooses an electric car with a £60,000 list price. Assume a gross sacrifice of £650 a month, £7,800 a year. In 2026/27:

• Employer NI saved on the sacrifice: 15% × £7,800 = £1,170
• Class 1A NI on the benefit: 15% × (4% × £60,000) = £360
• Net employer NI saving: £810 a year for one driver

That single driver offsets the extra pension NI on more than three employees like the one above. The employee also pays income tax and NI on a lower salary, with BiK tax far below what a petrol or diesel company car would attract.

BiK rates for EVs are already legislated to rise each year. Keeping the same car, sacrifice and 15% employer NI, the employer’s net saving looks like this:

Tax year	EV BiK rate	Class 1A NI on benefit	Net employer NI saving per driver
2026/27	4%	£360	£810
2027/28	5%	£450	£720
2028/29	7%	£630	£540
2029/30	9%	£810	£360

In 2029/30, the first year of the pension cap, each EV driver still saves the employer more than the £240 the cap costs on a typical higher-earning pension saver.

This is an illustration, not a quote. Real figures depend on the car, the lease, the employee’s tax position and the scheme’s terms. We work them out person by person.

What to keep in mind

• A car scheme is not a pension substitute. Staff should not reduce pension saving to fund a car. The two benefits work side by side, and both still save NI.
• The saving narrows as BiK rises. The table above shows it. It stays positive under the published rates, but it is worth knowing before you build a business case on 2026/27 numbers alone.
• Pay-per-mile is coming. Electric Vehicle Excise Duty of 3p a mile for battery electric cars is due from April 2028. It is a running cost for the driver, not the employer, but staff should understand it.
• The Budget could change things. EV salary sacrifice has survived every recent fiscal event, but nothing is guaranteed. We will update this post after 28 October.
• Scheme design matters. Early termination cover, eligibility rules and how a scheme handles minimum wage limits all affect whether it works for your people.

What employers can do now

April 2029 feels distant, but reward changes take time to design, consult on and communicate. Three practical steps:

1. Measure your exposure. Ask payroll how many employees sacrifice more than £2,000 a year into their pension, and by how much. That gives you the employer NI the cap will add.
2. Review your benefits mix. If you already run an EV salary sacrifice scheme, check whether take-up is where it should be. Low take-up is usually an education problem, not a demand problem. If you don’t run one, find out what it would take.
3. Watch the Budget on 28 October. Make decisions on confirmed rules, not speculation.

Odigo Verve is independent of manufacturers, leasing companies and funders. We help employers set up or review EV salary sacrifice schemes at zero net cost to the business, and we help their people understand exactly what a car would cost them before they commit.

If you’d like to know what the pension cap means for your organisation, get in touch at hello@odigoverve.com or visit odigoverve.com.