Salary Sacrifice After the Budget: What Employers Can Still Gain Before 2029
Salary sacrifice has long been one of the most effective ways for employers to support pension saving while reducing Employer NIC. The recent Budget announcement changed how this benefit will work, but not in the way many headlines suggested.
Salary sacrifice is still valuable.
The NIC advantage still exists and employers now have a three year window where the full benefit remains available.
Those who plan ahead will extract far more value than those who wait.
What the Budget Actually Changed
From April 2029, Employer NIC savings on salary sacrifice pension contributions will be capped at £2,000 per employee per year. Above that level, contributions can still be made, but the NIC relief stops.
A few key clarifications:
- This applies to employee contributions made via salary sacrifice
- Employer funded pension contributions remain NIC free
- Salary sacrifice remains completely valid as a mechanism
- The change is specific, not a withdrawal of the scheme
The biggest misunderstanding in the press is that salary sacrifice is being “closed down”. It is not.
What the Change Looks Like in Practice
Using a simple example:
- Employee earns £35,000
- They sacrifice part of their salary into a pension
- Today, the employer might save about £23 per month in NIC
- After the cap, that saving falls to around £15
The system still works. The saving is just smaller once the allowance is used. For typical contributors, the impact is modest. For higher earners or employers with enhanced pension packages, the impact is more noticeable.
The Three Year Window: Why Timing Matters
This is the part employers need to understand clearly.
- Full NIC savings apply until 2029 – Every month between now and April 2029 is uncapped saving that disappears later.
- New schemes introduced now benefit for several years – Employers who have been considering salary sacrifice still have time to implement it effectively.
- Planning is easier now than in 2028 – Late decisions lead to rushed communication, rushed policy changes and increased compliance risk.
Most employers underestimate timelines. The window is wider today than it will feel in two years’ time.
What Has Not Changed
To correct common misunderstandings:
- Employer-only pension contributions remain NIC free and unlimited
- Auto Enrolment contribution structures remain fully available
- Tax relief on pension contributions is unchanged
- Salary sacrifice contracts still follow the same rules
This is a targeted NIC change, not a redesign of pension funding.
Where Employers Should Take Care
Discussions have already begun about total reward restructuring, such as reducing salary and increasing employer pension contributions for higher earners. These arrangements can be useful, but must:
- Comply with OpRA
- Protect National Minimum Wage
- Be commercially justifiable
- Be documented correctly
Handled well, they create efficiency. Handled poorly, they create risk. This is an area where early thinking prevents later problems.
What Employers Should Do Now
The most helpful steps are:
- Review which employees currently use salary sacrifice
- Identify where contributions exceed, or may exceed, £2,000
- Model the NIC impact across different contribution levels
- Decide your policy for contributions above the cap from 2029
- Consider whether some support should shift to employer-only contributions
These decisions do not require immediate change, but they do benefit from early clarity.
Why Early Planning Still Matters
The salary sacrifice change is one part of a wider set of reforms arriving between 2026 and 2029. Employers who plan each element separately often feel the cumulative impact all at once. The risk is not that salary sacrifice becomes ineffective. The risk is waiting until 2029 and discovering that your organisation does not have the time, capacity or structure to adapt without disruption.
The rules remain favourable today. They will remain favourable for several years. Employers who use this window well will be in a stronger, more predictable position when the cap arrives.
Understanding the change early is the simplest way to avoid avoidable problems later.
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Contact us today and we’ll make sure you’re ready long before the new rules arrive.