Salary Exchange - Latest News
From April 2029, proposed changes to the National Insurance (NI) advantages of pension salary exchange/sacrifice, means a cap at £2,000 per employee per year will be introduced.
As such, the first £2,000 of salary‑exchanged pension contributions will be NI‑exempt; contributions above this threshold will attract standard employer and employee NI charges.
Employers currently save 15% employer NI on all salary‑exchanged pension contributions. From 2029, this saving will only apply to the first £2,000 per employee. Contributions above the cap will generate additional employer NI costs, reducing the financial efficiency of salary exchange for organisations with higher‑earning staff or generous contribution structures. This increased cost will have a significant impact on budgets and could call for a complete overhaul of their employee value proposition (EVP).
The Treasury estimates the reform will raise £4.7bn in 2029/30, underscoring the substantial employer NI impact.
Employees contributing more than £2,000 a year via salary exchange will pay NI on the excess—8% for basic rate earners and 2% for higher‑rate earners. This reduces take‑home pay for many mid‑ to high‑earners and affects those making additional voluntary contributions or maximising contributions ahead of retirement. It is very important to stress that income tax relief remains unchanged.
The House of Lords very recently proposed increasing the cap to £5,000 which would be a welcomed change for employees earning up to £100,000, resulting in retained full NI efficiencies for both employers and their employees. Is 2029’s problem really something to worry about now? Yes, in just 3 budget/forecasting reviews this change could be upon us – now is the time to consult, review and put plans in place to maximise efficiencies, to re-invest maximum NI savings for the sustainability and long term protection of your valued EVP.
To find out how we can help you review the tax relief status of your workplace pension, contact us.
Our Guide to Salary Exchange can also be downloaded here.