MaxGhenis · Oct 10, 2026 · Oct 2, 2026 · Oct 3, 2026 · Oct 3, 2026 · Oct 3, 2026
diff --git a/changelog.d/salary-sacrifice-needs-pay.fixed.md b/changelog.d/salary-sacrifice-needs-pay.fixed.md
@@ -0,0 +1 @@
+- Counted salary sacrifice pension contributions only for people with pay, so from 2029 the excess over the £2,000 cap no longer gives employment income to people without pay.
diff --git a/policyengine_uk/tests/microsimulation/test_salary_sacrifice_cap_reform.py b/policyengine_uk/tests/microsimulation/test_salary_sacrifice_cap_reform.py
@@ -222,9 +222,10 @@ def test_full_excess_redirected(reform_simulation):
     The broad-base haircut reduces ALL workers' employment income,
     but the full excess above cap is redirected to regular pension contributions.
     """
-    # Get weighted totals using map_to for proper aggregation
+    # Get weighted totals using map_to for proper aggregation. Only people
+    # with pay have a salary sacrifice, so the excess is measured on that.
     ss_contributions = reform_simulation.calculate(
-        "pension_contributions_via_salary_sacrifice",
+        "pension_contributions_via_salary_sacrifice_from_pay",
         POLICY_YEAR,
         map_to="person",
     )

diff --git a/...sts/policy/baseline/gov/hmrc/national_insurance/salary_sacrifice_pension_ni_employee.yaml b/...sts/policy/baseline/gov/hmrc/national_insurance/salary_sacrifice_pension_ni_employee.yaml
@@ -1,8 +1,13 @@
+# Salary sacrifice counts only for people with pay
+# (employment_income_before_lsr > 0). This runner does not copy an
+# employment_income input there (policyengine_uk.Simulation does), so each
+# case sets both.
 - name: No employee NI charge when salary sacrifice below £2,000 cap
   period: 2025
   absolute_error_margin: 0.01
   input:
     employment_income: 40_000
+    employment_income_before_lsr: 40_000
     pension_contributions_via_salary_sacrifice: 1_500
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -14,6 +19,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 45_000
+    employment_income_before_lsr: 45_000
     pension_contributions_via_salary_sacrifice: 2_250
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -26,6 +32,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 50_000
+    employment_income_before_lsr: 50_000
     pension_contributions_via_salary_sacrifice: 10_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -38,6 +45,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 125_000
+    employment_income_before_lsr: 125_000
     pension_contributions_via_salary_sacrifice: 25_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -50,6 +58,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 80_000
+    employment_income_before_lsr: 80_000
     pension_contributions_via_salary_sacrifice: 5_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -62,6 +71,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 60_000
+    employment_income_before_lsr: 60_000
     pension_contributions_via_salary_sacrifice: 2_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -73,6 +83,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 35_000
+    employment_income_before_lsr: 35_000
     pension_contributions_via_salary_sacrifice: 2_100
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -85,6 +96,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 45_000
+    employment_income_before_lsr: 45_000
     pension_contributions_via_salary_sacrifice: 3_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0

diff --git a/...sts/policy/baseline/gov/hmrc/national_insurance/salary_sacrifice_pension_ni_employer.yaml b/...sts/policy/baseline/gov/hmrc/national_insurance/salary_sacrifice_pension_ni_employer.yaml
@@ -1,8 +1,13 @@
+# Salary sacrifice counts only for people with pay
+# (employment_income_before_lsr > 0). This runner does not copy an
+# employment_income input there (policyengine_uk.Simulation does), so each
+# case sets both.
 - name: No employer NI charge when salary sacrifice below £2,000 cap
   period: 2025
   absolute_error_margin: 0.01
   input:
     employment_income: 40_000
+    employment_income_before_lsr: 40_000
     pension_contributions_via_salary_sacrifice: 1_500
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -14,6 +19,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 45_000
+    employment_income_before_lsr: 45_000
     pension_contributions_via_salary_sacrifice: 2_250
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -26,6 +32,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 125_000
+    employment_income_before_lsr: 125_000
     pension_contributions_via_salary_sacrifice: 25_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -38,6 +45,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 80_000
+    employment_income_before_lsr: 80_000
     pension_contributions_via_salary_sacrifice: 15_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -50,6 +58,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 60_000
+    employment_income_before_lsr: 60_000
     pension_contributions_via_salary_sacrifice: 2_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -61,6 +70,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 35_000
+    employment_income_before_lsr: 35_000
     pension_contributions_via_salary_sacrifice: 2_100
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -73,6 +83,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 30_000
+    employment_income_before_lsr: 30_000
     pension_contributions_via_salary_sacrifice: 5_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
@@ -85,6 +96,7 @@
   absolute_error_margin: 0.01
   input:
     employment_income: 45_000
+    employment_income_before_lsr: 45_000
     pension_contributions_via_salary_sacrifice: 3_000
     gov.hmrc.national_insurance.salary_sacrifice_pension_cap: 2_000
     gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0

diff --git a/...k/tests/policy/baseline/gov/hmrc/pensions/pension_contributions_for_annual_allowance.yaml b/...k/tests/policy/baseline/gov/hmrc/pensions/pension_contributions_for_annual_allowance.yaml
@@ -59,6 +59,7 @@
     employee_pension_contributions_reported: 5_000
     personal_pension_contributions: 0
     employer_pension_contributions: 2_000
+    employment_income_before_lsr: 60_000
     pension_contributions_via_salary_sacrifice: 8_000
   output:
     # employee_pension_contributions = 5_000 + 0 (no excess) = 5_000

diff --git a/...olicy/baseline/gov/hmrc/pensions/pension_contributions_via_salary_sacrifice_from_pay.yaml b/...olicy/baseline/gov/hmrc/pensions/pension_contributions_via_salary_sacrifice_from_pay.yaml
@@ -0,0 +1,49 @@
+- name: A sacrifice within pay is kept in full
+  period: 2029
+  input:
+    employment_income_before_lsr: 40_000
+    pension_contributions_via_salary_sacrifice: 5_000
+  output:
+    pension_contributions_via_salary_sacrifice_from_pay: 5_000
+
+- name: A whole-bonus sacrifice above the remaining salary is kept in full
+  period: 2029
+  input:
+    # £40,000 salary kept, £50,000 bonus sacrificed (HMRC allows this while
+    # cash pay stays above the National Minimum Wage).
+    employment_income_before_lsr: 40_000
+    pension_contributions_via_salary_sacrifice: 50_000
+  output:
+    pension_contributions_via_salary_sacrifice_from_pay: 50_000
+
+- name: A person without pay sacrifices nothing
+  period: 2029
+  input:
+    pension_contributions_via_salary_sacrifice: 27_000
+  output:
+    pension_contributions_via_salary_sacrifice_from_pay: 0
+
+- name: Negative pay supports no sacrifice
+  period: 2029
+  input:
+    employment_income_before_lsr: -1_000
+    pension_contributions_via_salary_sacrifice: 27_000
+  output:
+    pension_contributions_via_salary_sacrifice_from_pay: 0
+
+- name: A negative sacrifice input counts as none
+  period: 2029
+  input:
+    employment_income_before_lsr: 40_000
+    pension_contributions_via_salary_sacrifice: -500
+  output:
+    pension_contributions_via_salary_sacrifice_from_pay: 0
+
+- name: The condition applies before the cap exists, 2028
+  period: 2028
+  input:
+    pension_contributions_via_salary_sacrifice: 27_000
+  output:
+    pension_contributions_via_salary_sacrifice_from_pay: 0
+    pension_contributions_via_salary_sacrifice_adjusted: 0
+    salary_sacrifice_returned_to_income: 0
diff --git a/...ngine_uk/tests/policy/baseline/gov/hmrc/pensions/salary_sacrifice_returned_to_income.yaml b/...ngine_uk/tests/policy/baseline/gov/hmrc/pensions/salary_sacrifice_returned_to_income.yaml
@@ -0,0 +1,84 @@
+# From 6 April 2029 the salary sacrifice above the £2,000 cap returns to
+# employment income. Only people with pay have a salary sacrifice, so the cap
+# never gives pay to a person who has none.
+
+- name: No pay and a salary sacrifice input gives no employment income, 2029
+  period: 2029
+  absolute_error_margin: 0.01
+  input:
+    pension_contributions_via_salary_sacrifice: 27_000
+  output:
+    salary_sacrifice_returned_to_income: 0
+    pension_contributions_via_salary_sacrifice_adjusted: 0
+    employment_income: 0
+    salary_sacrifice_pension_ni_employee: 0
+    salary_sacrifice_pension_ni_employer: 0
+    employee_pension_contributions: 0
+
+- name: No pay and a salary sacrifice input gives no employment income, 2030
+  period: 2030
+  absolute_error_margin: 0.01
+  input:
+    pension_contributions_via_salary_sacrifice: 27_000
+  output:
+    salary_sacrifice_returned_to_income: 0
+    employment_income: 0
+
+- name: Self-employed person with no pay gets no employment income, 2029
+  period: 2029
+  absolute_error_margin: 0.01
+  input:
+    self_employment_income: 30_000
+    pension_contributions_via_salary_sacrifice: 27_000
+  output:
+    salary_sacrifice_returned_to_income: 0
+    employment_income: 0
+
+- name: Pay above the sacrifice returns the excess over the cap, 2029
+  period: 2029
+  absolute_error_margin: 0.01
+  input:
+    employment_income_before_lsr: 40_000
+    pension_contributions_via_salary_sacrifice: 5_000
+    gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
+  output:
+    # 5,000 - 2,000 cap
+    salary_sacrifice_returned_to_income: 3_000
+    pension_contributions_via_salary_sacrifice_adjusted: 2_000
+    employment_income: 43_000
+
+- name: A whole-bonus sacrifice above the remaining salary returns its full excess, 2030
+  period: 2030
+  absolute_error_margin: 0.01
+  input:
+    employment_income_before_lsr: 40_000
+    pension_contributions_via_salary_sacrifice: 50_000
+    gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
+  output:
+    # 50,000 - 2,000 cap
+    salary_sacrifice_returned_to_income: 48_000
+    pension_contributions_via_salary_sacrifice_adjusted: 2_000
+    employment_income: 88_000
+
+- name: Low pay with a large sacrifice still returns the excess over the cap, 2029
+  period: 2029
+  absolute_error_margin: 0.01
+  input:
+    employment_income_before_lsr: 1_500
+    pension_contributions_via_salary_sacrifice: 30_000
+    gov.contrib.behavioral_responses.salary_sacrifice_broad_base_haircut_rate: 0
+  output:
+    salary_sacrifice_returned_to_income: 28_000
+    pension_contributions_via_salary_sacrifice_adjusted: 2_000
+    employment_income: 29_500
+
+- name: Nothing returns before the cap starts, 2028
+  period: 2028
+  absolute_error_margin: 0.01
+  input:
+    employment_income_before_lsr: 40_000
+    pension_contributions_via_salary_sacrifice: 5_000
+  output:
+    salary_sacrifice_returned_to_income: 0
+    pension_contributions_via_salary_sacrifice_adjusted: 5_000
+    employment_income: 40_000
Original file line number	Diff line number	Diff line change
		@@ -0,0 +1 @@
		- Counted salary sacrifice pension contributions only for people with pay, so from 2029 the excess over the £2,000 cap no longer gives employment income to people without pay.