Pension Salary Sacrifice Changes Explained (2029): A Practical Guide for Employers and Employees
The government has announced proposed reforms that will reduce the National Insurance (NIC) advantages of pension salary sacrifice arrangements from April 2029.
While salary sacrifice has long been one of the most tax-efficient ways to contribute to pensions, the new limits may increase costs for:
Employers
Directors
Higher earners
Small business owners
Planning is essential to avoid unexpected payroll and pension expenses.
At S & B Accountants Ltd – accountants in East London supporting businesses across London, we are already helping clients review the financial impact and prepare early.
What is pension salary sacrifice?
Salary sacrifice (also known as salary exchange) allows an employee to:
Give up part of their gross salary
The employer contributes that amount into their pension
Currently, this typically reduces:
Income tax
Employee NIC
Employer NIC
Because both parties save NIC, it has become popular with small businesses, company directors, and higher-rate taxpayers.
What will change from April 2029?
Under the proposed rules:
Only the first £2,000 per tax year of salary sacrifice pension contributions will be NIC-free
Contributions above £2,000 will be subject to:
Employee NIC
Employer NIC
Pension contributions remain income tax-free
What this means in practice
If you contribute more than £2,000 annually through salary sacrifice, the tax advantage will reduce.
For employers, the additional employer NIC cost could be high.
Who is likely to be affected?
Employees contributing under £2,000 per year
Minimal or no impact.
Many auto-enrolment participants may fall into this category.
Employees contributing larger amounts
Higher earners or those contributing aggressively for retirement may:
Pay extra NIC
See reduced overall tax efficiency
Small business owners and directors
Directors often use salary sacrifice for tax-efficient extraction of profits.
These changes could:
Increase payroll costs
Reduce planning opportunities
Require restructuring remuneration strategies
Professional advice will be important.
Employer impact: why businesses should act early
Employers usually save more NIC than employees under salary sacrifice schemes. Once relief is restricted, businesses could face:
Higher employer NIC bills
Reduced cost savings
Less flexibility with matched contributions
Changes to benefit packages
If you operate a pension scheme for staff or run payroll for a small business, it is advisable to model costs well before 2029.
This is particularly relevant for:
SMEs
Owner-managed companies
Growing businesses hiring staff
Start-ups introducing benefits
Planning opportunities before 2029
The good news is there is still time to plan.
For employees
Consider increasing contributions while full NIC savings remain
Review long-term retirement targets
Compare salary sacrifice vs personal contributions
For employers
Forecast future NIC exposure
Introduce salary sacrifice if not currently offered
Encourage staff participation now
Review contracts and policies
Plan alternative reward structures
Early preparation can deliver meaningful savings.
How S & B Accountants can help
If you’re searching for:
Accountants in East London
Accountants in London
Small business accountants
Accountants near me for payroll and tax planning
our team provides practical, tailored support, including:
Salary sacrifice scheme setup
Payroll and NIC modelling
Pension and tax planning for directors
Employer cost forecasting
Compliance and HMRC guidance
Ongoing payroll and pension administration
We work with businesses across East London, Mile End, Whitechapel, Stratford and Greater London.
Frequently Asked Questions (FAQs)
Will salary sacrifice still be worth it after 2029?
Yes, income tax relief still applies. However, NIC savings may be reduced for larger contributions, so the benefit may be smaller.
Does this affect small businesses?
Yes. Employers may pay higher NIC, which can increase payroll costs. Small businesses should review their pension arrangements early.
Should I increase my pension contributions now?
Possibly. Increasing contributions before 2029 may maximise current NIC savings. Individual advice is recommended.
Do directors still benefit from salary sacrifice?
In many cases, yes, but the savings may be reduced. Directors should review remuneration strategies with their accountant.
When should employers start planning?
Ideally now. Modelling costs early avoids last-minute changes and gives time to adjust employment contracts or benefits.
Can you help set up or review our scheme?
Yes. Our team at S & B Accountants Ltd regularly assists employers and employees with salary sacrifice planning and payroll implementation.
Speak to a local specialist
If you would like personalised advice, contact S & B Accountants Ltd, trusted accountants in East London, helping small businesses across London.
We’ll review your situation and provide clear, practical recommendations.
Disclaimer
This article is provided for general information only and reflects proposed legislation that may change. It does not constitute tax, legal, or financial advice. Professional advice should be obtained based on your specific circumstances.