Rachel Reeves has confirmed a significant change to pension tax breaks that will affect all UK households. The clock is ticking for those looking to take advantage of salary sacrifice schemes, as the benefits will be restricted from April 2029.
What Is Changing?
The Labour Party government announced that from April 2029, any salary-sacrificed pension contributions above £2,000 a year will no longer be exempt from employer and employee National Insurance contributions. This means that if you pay into a pension using salary sacrifice, you will pay NI on any amount exceeding £2,000.
Time is running out for UK households to take advantage of this valuable scheme. Jason Hollands at the investment platform Bestinvest by Evelyn Partners said: "Taking advantage now really makes sense."
Expert Advice on Maximising Contributions
Steve Webb, a former Liberal Democrats pensions minister now a partner at consultancy firm LCP, advises: "You can max out your contributions. Anything you can sacrifice before April 2029 is worth a look." He added: "If you might be able to do that sooner through salary sacrifice, it’s going to be much more NI-efficient than if you do it after April 2029."
Hollands noted that upping salary sacrifice contributions now "could be particularly important for those closer to retirement – aged in their 50s and 60s – who may be trying to catch up on building a pension fund. Taking advantage while they can is crucial, particularly if the employer passes on their employer NI saving."
Impact on Savers and Employers
James Floyd, managing director of Alltrust Services, explained: "If you’re a saver, understand that salary sacrifice is changing, not disappearing. But you need to know what your employer is planning. If they’re switching to relief at source, make sure you understand what that means for your take-home pay and your tax position."
He added: "And if you’re in government, the OBR just told you what the rest of us already knew. This policy doesn’t just affect high earners gaming the system. It affects millions of ordinary workers trying to save for retirement in a system you keep making harder to navigate. The consequences will play out for decades. Just not on this parliament’s watch."
With the deadline approaching, households are urged to review their pension contributions and consider maximising salary sacrifice while the full NI exemption remains in place.
