Salary sacrifice schemes are set to be scrapped by many companies following a rule change announced by Chancellor Rachel Reeves. Nearly half of employers across the UK currently offer salary sacrifice for pension contributions, according to new research from Everywhen.
The study reveals that almost a fifth (18%) of employers have no plans to make any adjustments to their schemes when the new rules come into effect. The government will cap the National Insurance (NI) exemption on salary sacrifice pension contributions at £2,000 a year from April 2029.
Maximising Benefits While Possible
Everywhen is urging employers to consider maximising the benefits of salary sacrifice while they still can. Sorangi Shah, client director at Everywhen, said: “Utilising salary sacrifice for pension contributions is a great way for employees to maximise their investments. It’s a simple way to significantly reduce income tax and NI costs.”
Almost a quarter (24%) of employers say they intend to set up salary sacrifice for the first time to take advantage of these savings. If salary sacrifice is already in place, 30% will proactively promote the benefits for employees. However, only 35% say they will review the impact on staff nearer the time.
Impact on Higher Rate Taxpayers
Shah added: “It’s particularly beneficial for higher rate taxpayers and those affected by tax traps for tapering of child benefit or personal allowance, and eligibility for tax-free childcare benefits. For employers who allow salary sacrifice for pension contributions, the message is: review it and don’t forget to budget for the impact the cap will have from 2029.”
Employers also benefit through lower national insurance contributions when staff participate in the arrangements. However, the Labour Party Chancellor announced that pension contributions eligible for national insurance savings will be capped at £2,000 per year.
Details of the New Rule
The measure is due to take effect from April 2029 and is expected to raise £4.7 billion in its first year, Rachel Reeves confirmed. Workers currently pay national insurance at eight per cent on earnings between £12,570 and £50,270, with a rate of two per cent applied above that threshold.
The change is prompting many employers to reassess their salary sacrifice offerings, with some planning to phase out schemes entirely before the cap takes effect.
