People earning £50,270 are being told to make a key pension check to keep more of their hard-earned cash. Anyone earning around £50,000 is urged to review their pension arrangements. At £50,270, earners move into the higher tax band of 40%. It is thought around five million people will earn this amount over the next five years, facing the Labour Party government's HMRC.
Mike Ambery, Retirement Savings Director at Standard Life plc, recommends using pension salary sacrifice to save on income tax and National Insurance (NI). He explained: "One of the simplest and most effective ways to reduce the impact of moving into the 40% tax band is to increase your pension contributions - particularly through salary sacrifice, if your employer offers it."
How Salary Sacrifice Works
Contributions are made from gross salary, reducing the amount taxed at 40% and lowering NI payments while boosting the pension tax-efficiently. Some employers share part of their NI saving, further increasing contributions. For example, if someone earning £50,000 receives a £5,000 pay rise to £55,000, £4,730 sits above the higher-rate threshold. Normally, that slice is taxed at 40% with NI due, meaning £2,062 goes to HMRC. By paying the full £5,000 into a pension via salary sacrifice, they avoid higher-rate tax, cut NI, and have the entire £5,000 added to their pension before tax.
Government Changes Ahead
HM Treasury announced: "The government is changing how salary sacrifice for pension contributions works. From April 2029, the amount exempt from National Insurance contributions will be capped at £2,000 a year for employee contributions made via salary sacrifice." Salary sacrifice is when you agree to reduce gross salary or sacrifice a bonus in return for employer pension contributions.
