The Autumn Budget announcement is always a big day in the UK’s financial calendar, and this year was no exception. In the hours leading up to the Chancellor’s speech, there was plenty of speculation-fuelled even more by a last-minute leak from the Office for Budget Responsibility (OBR) about the details of the budget. Social media buzzed, news outlets scrambled to interpret the hints, and many people wondered what surprises might be in store.
As the Chancellor took to the dispatch box just after lunchtime, the country tuned in to hear what would change for the years ahead.
There was a lot announced in the budget, which we covered in a deep dive here, but here is a snippet of one of the key topics.
Salary sacrifice on pensions
What does salary sacrifice on pensions mean?
Salary sacrifice is an arrangement where you agree to give up part of your salary, and your employer pays that amount directly into your pension. This means you pay less National Insurance (NI) and income tax, and your take- pay is higher than if you made the same pension contribution from your after-tax salary. It’s a popular way to boost pension savings, especially for higher earners.
What’s the change?
Until now, there was no upper limit on how much of your salary you could sacrifice for pension contributions and still benefit from reduced National Insurance. Both employees and employers could save NI on the full amount of salary sacrificed, making it especially attractive for those able to contribute large sums.
From April 2029, the Government will cap the amount of pension contributions that can benefit from National Insurance savings through salary sacrifice at £2,000 per year, per employee. This means:
- You can still use salary sacrifice for pension contributions above £2,000, but any amount over £2,000 will no longer get the NI saving—normal NI will be charged on the excess.
- This change applies to both employee and employer National Insurance.
The impact on employees and employers
- If you’re contributing less than £2,000 a year via salary sacrifice to a pension you won’t notice any change. You’ll still get the full National Insurance saving on your pension contributions.
- If you contribute more than £2,000 a year via salary sacrifice, typical for many higher earners, you’ll pay more National Insurance on the amount above £2,000 from April 2029. For example:
- If you sacrifice £5,000 of salary into your pension, only the first £2,000 will be free of NI. The remaining £3,000 will be subject to normal NI charges.
- For an employee in the basic rate tax band, this means an extra £240 in NI for every £3,000 above the cap (at 8%), and for the employer, an extra £450 (at 15.0%).
How do employers use NI savings now?
It’s important to know that not all employers treat the NI saving from salary sacrifice in the same way:
- Some employers keep the NI saving themselves.
- Some pass the full NI saving on to your pension, boosting your retirement pot.
- Others might split the saving—putting some into your pension and using the rest to fund other employee benefits, like life cover or extra perks.
With the new cap, there will be less NI saving available, so employers will need to decide how to handle this change. If your employer currently passes on the NI saving, you may see less going into your pension above the £2,000 cap. If they use the saving for other benefits, they may need to review those arrangements too.
Overall
The change doesn’t take effect until April 2029, so there’s time for pension schemes, payroll providers, and employers to work out the details with the Government. It also gives the government a chance to roll back on this if the economy doesn’t grow enough.
For many, this will mean less going into employees’ pensions and more being paid as tax.
What Should You Do Now?
For most people, this Budget doesn’t require urgent action or a change of course. If you’ve been waiting for clarity before making financial decisions, you can continue with your plans. However, it’s important to recognise that, while there are few immediate changes, the impact of frozen allowances and future tax rises will build up over time.
For most, the best approach is to stay on track, keep your plans under review, and be aware of how gradual changes may affect you in the years ahead.
Need Advice?
With so many moving parts and individual circumstances, we believe in the value of independent, ongoing financial planning. If you don’t already have regular reviews, or if you’re unsure how these changes might affect you, please get in touch for a personal review. For clients who already benefit from our ongoing service, we’ll be happy to discuss the details and implications at your next annual review.
Remember: The best financial decisions are made with up-to-date, factual information and tailored advice. If you have questions or want to discuss your financial plan, we’re here to help.
Disclaimer
This summary is provided for general information purposes only and does not constitute personal financial advice, a recommendation, or guidance to make any financial decisions. The content is based on information available at the time of writing, including official Government announcements and reputable sources. Some measures discussed may be subject to further consultation, may not be implemented immediately, or could change as legislation develops.
Tax rules, allowances, and rates are subject to change and may vary depending on your individual circumstances and where you live in the UK. The impact of any changes will differ from person to person. You should not make financial decisions based solely on this summary. We strongly recommend seeking personalised, independent advice before taking any action in response to Budget announcements.
Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up, and you may not get back the amount you invest.
