If you’re enjoying the National Insurance (NI) savings from pension salary sacrifice, brace yourself. Big changes are coming.
They don’t arrive until April 2029, but NOW is the time to understand what’s involved and take action as we head towards the new rules.
The government estimates that the salary sacrifice changes will impact 44% of employees.
If you are an employee of your own limited company, this may impact you.
What are the pension salary sacrifice changes?
Currently, pension contributions made through salary sacrifice are exempt from National Insurance contributions (NICs). That’s a win-win: both employees and employers save NICs.
From April 2029, that advantage will be capped. Only the first £2,000 of pension contributions made via salary sacrifice each tax year will be exempt from NICs.
Above that level of pension contribution will mean:
- Employees pay Class 1 primary NICs
Employers pay Class 1 secondary NICs
Income tax relief is not changing. It’s the NI benefit that’s set to shrink.
What does this mean for employees?
If the amount you sacrifice does not exceed £2,000 (regardless of the salary percentage involved), no change is planned.
However, any amount over £2,000 will involve two extra payments:
- The employee pays 2% of the value exceeding the cap.
- The employer pays 15% of the value exceeding the cap.
Importantly, the salary sacrifice option is only available if your salary remains above the National Minimum Wage after the sacrificed amount is deducted.
Why this matters to employers NOW
As an employer, do you …
- match employee contributions above auto-enrolment minimum levels?
- share NIC savings with employees via extra pension contributions?
- promote salary sacrifice as a core benefit?
The rule change in April 2029 means that:
- Employer costs can rise sharply, with cash flow risk.
- Generous pension matching may suddenly look unaffordable.
- NIC-sharing arrangements may no longer stack up.
Making informed decisions now avoids rushed changes as April 2029 approaches. This also lets you make the most of the current rules.
Taking advantage today
If you’re planning to maximise pension savings, sacrificing more of your salary more before April 2029 lets you:
- Lock in full NIC relief.
- Get more value for the same overall cost.
Waiting could mean paying more for the same pension outcome. Even with the future cap, salary sacrifice will still be beneficial, just less generous.
If you are an employer who:
- doesn’t currently offer salary sacrifice,
- has low employee take-up, or
- hasn’t reviewed pension communications in years …
… you have time to act while the tax system is still on your side.
‘If pensions are part of your reward strategy or retirement plan, you need to be aware of these changes,’ says Emily Bridges of re:accounts Chartered Accountants in Stevenage. ‘As always, the best tax planning happens before the rules change, not after.’
To discuss how proactive tax planning can navigate this change and minimise your tax liability, arrange a no-obligation call with the friendly experts at re:accounts. Let’s explore how to save you money.
