The Chancellor’s Autumn Budget has introduced a significant change to salary sacrifice arrangements for pensions, which will impact both employers and employees from April 2029.
What’s changing?
Currently, pension contributions made via salary sacrifice are exempt from National Insurance Contributions (NICs) for both employers and employees. This has been a popular way to boost retirement savings tax-efficiently.
From April 2029, this exemption will be capped:
- Only the first £2,000 per year of employee pension contributions via salary sacrifice will remain NIC-free.
- Contributions above this threshold will attract both employer and employee NICs, at standard rates:
- Employer NIC: 15%
- Employee NIC:
- 8% on earnings up to £50,270
- 2% on income above that level
Importantly, income tax relief remains unchanged, so pension contributions will still benefit from tax relief within the usual annual allowance limits.
What Does This Mean for Employers?
- Salary sacrifice schemes can continue, but NIC savings will be limited.
- Payroll systems will need updating to apply NICs on contributions above £2,000.
- Employer pension contributions (outside salary sacrifice) remain NIC-free.
Impact on Employees
- Most employees making standard contributions won’t be affected.
- Higher earners or those making substantial additional contributions will see increased NIC costs.
- Planning ahead is key – especially for those using bonus sacrifice arrangements.
This change is a slow burn, with implementation delayed until 2029, giving businesses time to adapt.
However, it signals a clear direction: the government is tightening reliefs that disproportionately benefit higher earners. Employers should review their reward strategies and communicate early with staff.
The team at Dafferns is here to help you navigate the complexities and help you plan accordingly. Please do not hesitate to get in contact if you require any assistance.
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