Research by the Standard Life Centre for the Future of Retirement revealed that two in five (39 per cent) employers are less likely to offer salary or bonus sacrifice pension schemes.
It might just be that employers are making a u-turn on their current schemes due to the National Insurance relief cap announced in the Autumn Budget 2025.
One in 10 (11 per cent) have already decided to withdraw their salary sacrifice scheme completely since the Budget decision.
These numbers are pretty high and it might leave you wondering if the benefit is still worthwhile.
What is changing for salary sacrifice?
From April 2029, the government will introduce a £2,000 annual cap on the amount of pension contributions made through salary sacrifice that qualify for National Insurance (NI) savings.
These contributions are exempt from Income Tax and NI at the moment and this makes them highly tax-efficient.
However, the new rules will put a limit on these advantages.
Anything above this threshold will still benefit from Income Tax relief but will be subject to NI contributions for employees and employers.
You need to know that this isn’t limiting how many pennies you can put in your pension pot. Instead, it just reduces one of the scheme’s biggest incentives.
How will this affect employers?
Employers could face higher payroll costs as the contributions above the £2,000 cap will attract employer NI at a rate of 15 per cent.
This can quickly add up, especially if you are making generous pension contributions or matching employee payments.
It’s no surprise that research suggests employers are pulling back or withdrawing their schemes altogether.
Employers will have to reassess their current structures to make sure they remain affordable.
You might want to review your contribution levels, bonus sacrifice arrangements and how NI savings are shared with employees.
We know the cap might put you off the idea of salary sacrifices.
However, withdrawing entirely could reduce your benefits package and make your company’s roles less competitive and harder to retain talent.
How will this affect employees?
Employees contributing more than £2,000 annually through salary sacrifice will see reduced NI savings.
They might also see a dip in their take home pay compared to what the current system offers.
Lower and middle earners may feel this more noticeably, as they often pay higher NI rates on earnings above the threshold.
However, the main benefits do remain intact.
Contributions will still receive full Income Tax relief and reduced adjusted net income, which can help employees to avoid higher-rate tax thresholds, the High-Income Child Benefit tax charge and the tapering of personal allowances.
Is a salary sacrifice pension still worth it?
The reform announcement may not be welcomed by many, but there is still a £2,000 allowance that offers NI savings for employees.
The changes also do not take effect for another three years and you have time to make the most of the current rules.
Our professional team can help employers model the impact of the changes and assess if the current pension schemes remain effective.
We can help explain the reform in detail, so you feel comfortable answering your employees’ questions and giving them accurate information.
We are also here for employees, advising them on how the cap might affect their take-home pay.
The reform might even see some more changes before April 2029 and we can keep you updated on how you are affected.
To learn more about how the salary sacrifice cap affects you, get in touch.