In the Budget announcement to Parliament on 26 November 2025, it was revealed that the rules around the use of Salary Sacrifice for pension contributions will change from April 2029.
The Announcement
In summary, from April 2029 there will be a £2,000 per annum cap on the level of any Salary, or Bonus Sacrifice that qualifies for National Insurance Contribution relief, both in terms of the amounts due from the employee and the employer.
There has been a lot of coverage since the announcement that suggests this will have a negative impact on the level of pension savings, and that it will have a significant impact on costs paid by the employer.
But is there another way of looking at this?
The changes that have been announced are due to come into effect from April 2029. This means that, for the rest of this fiscal year, and the three subsequent years, there is no change to how Salary Sacrifice works. Therefore, employees will continue to benefit from their full Income Tax and National Insurance relief entitlements throughout this period, and employers will continue to see their National Insurance costs reduced by the full rate on any such sacrificed payments. This delayed implementation must therefore be a good thing for allowing consistent ongoing pension planning, both for employees and employers.
In addition, and as we all know, quite often changes announced today with a future implementation date do not always arrive in the form they were originally intended or arrive at all. As such, there is a possibility that this announcement is altered in some way before 06 April 2029, and so making decisions in haste about the ongoing value of Salary Sacrifice now could be the very worst thing to do.
What would be the effect of the proposed changes on employees and employers?
As employees will continue to receive the full Income Tax reliefs that currently exist through Salary Sacrifice, they will still be able to use such pension funding strategies to minimise their Taxable Earnings. Thus, potentially ensuring they remain within lower tax brackets that could mean they retain access to tax-free childcare benefits and may also retain some or all of their full personal allowance.
For example, an employee earning £109,999 would still be able to Salary Sacrifice £10,000 to reduce their taxable income to £99,999, retaining their access to tax-free childcare and their full personal allowance, benefits that could be worth thousands to them.
In this example, with the Salary Sacrifice in excess of the £2,000 per annum cap, the employee will, from April 2029, pay an additional £16.66 per month in National Insurance Contributions, and the employer would see an increase in their National Insurance costs of £125.00 per month.
With the change in treatment of Salary Sacrifice only affecting National Insurance Contribution reliefs, the per annum impact for employees can be summarised as below – where employees are sacrificing 5.00% of their salary, and current National Insurance rates still apply in 2029.
| Salary | Current Employee NI Saving | Current Employer NI Saving | Additional Employee NI Costs post 2029 | Additional Employer NI Costs post 2029 |
| £40,000 | £160.00 | £300.00 | £0.00 | £0.00 |
| £45,000 | £180.00 | £337.50 | £20.00 | £37.50 |
| £50,000 | £200.00 | £375.00 | £40.00 | £75.00 |
| £75.000 | £75.00 | £562.50 | £35.00 | £262.50 |
| £100,000 | £100.00 | £750.00 | £60.00 | £450.00 |
| £125,000 | £125.00 | £937.50 | £85.00 | £637.50 |
| £150,000 | £150.00 | £1,125.00 | £110.00 | £825.00 |
As can be evidenced, for any employees earning under £40,000 there is likely to be minimal or no impact. At all salary levels both the employee and the employer continue to make valuable National Insurance savings by offering a Salary Sacrifice facility, so there is little merit in considering the removal of such an important employee benefit.
Summary
In our view, Salary Sacrifice remains a valuable employee benefit up to 2029 and potentially beyond, with continued benefits for employees and employers.
There remains a compelling case for Salary Sacrifice, as any company not offering this important employee benefit will miss out on a clear and measurable way to support their employees’ wellbeing while also reducing company costs up to the salary sacrifice cap from 2029.
We continue to recommend that employers take specialist advice around Salary Sacrifice before making any changes to their employee benefit arrangements, and we would be delighted to have those conversations with you.
Disclaimer:
The information provided is for general information only and is not intended to address the particular requirements of an individual or business. It does not constitute any form of advice or recommendation by Menzies Employee Benefits or Menzies Wealth Management Ltd and should not be relied upon by individuals in either making or refraining from making any financial decisions. Where necessary, you should seek appropriate professional advice before acting on any of the information provided.
Menzies Employee Benefits is an appointed representative of Menzies Wealth Management who is regulated and authorised by the Financial Conduct Authority (FRN 486548).
Menzies Wealth Management Limited is registered in England and Wales under number 06597008. Our registered office is at 4th Floor, 95 Gresham Street, London EC2V 7AB.
Contact Our Experts
