Pension salary sacrifice changes still present opportunity for employers
The 2025 Autumn Budget announced a significant change coming in relation to the National Insurance contribution (NIC) savings available under pension salary sacrifice. From April 2029, NIC relief will only be available on the first £2,000 of pension contributions made through salary sacrifice per employee, per tax year. Any amount contributed via salary sacrifice above this cap will be subject to both employer and employee NICs.
These changes do not come into force until April 2029, therefore there is plenty of opportunity for employers and their workforces to benefit from full NIC relief and to plan for the changes over the next three tax years.
While this new measure will reduce savings for higher earners once it comes into force, salary sacrifice will remain a valuable planning tool for most employees and employers. However, existing arrangements should be reviewed and reassessed.
What does this mean for employers?
- Full NIC savings are available for the current and next three tax years on pension salary sacrifice contributions.
- If you don’t offer pension salary sacrifice, consider whether this is a viable opportunity for you and your workforce to save NIC.
- There will be higher NIC costs from April 2029 for businesses and their workforce where pension salary sacrifice is already in place and employees are sacrificing more than £2,000 a year.
- Opportunity to review and change current compensation structures.
- Executive packages and enhanced contribution structures are likely to be most impacted. Employers should consider alternatives such as direct employer pension contributions outside of salary sacrifice, adjustments to total reward, or rebalancing within existing schemes.
- Payroll systems will need to have capabilities to distinguish between contributions which receive NIC relief and those that don’t.
- HR teams will need to review internal policies, employee communications, and scheme rules ahead of the 2029 deadline.
What does this mean for employees?
Most employees will see no change as many typical sacrifice levels fall within the new cap. However, higher earners and/or those who make larger contributions via salary sacrifice will face higher NIC costs and lower net pay compared to their current arrangements.
How can employers prepare?
Although the change is not due to be implemented for a significant amount of time, it would be advisable for employers to begin preparing now.
Employers should:
- Review whether salary sacrifice arrangements should be implemented if not currently offered.
- Identify how many of their employees contribute over £2,000 via pension salary sacrifice and calculate the future NIC impact.
- Run some model scenarios to work out whether it is best value to absorb the NIC cost, pass the cost on to employees, or redesign the current contribution structures.
- Consider where changes to reward packages, pension policies, or salary sacrifice arrangements may be required.
We’re here to help
Our employment tax, employee benefits and payroll specialists can support you with:
- Impact modelling and financial forecasting
- Redesigning salary sacrifice, benefits and reward structures
- Payroll implementation and compliance
- Employee communications and change management
If you would like to discuss these changes or explore the best way to prepare, get in touch with a member of our specialist team or speak to your usual local Azets adviser.
