5 salary sacrifice myths debunked – and why it’s still a win-win

Since the Budget announcement in November, salary sacrifice has been getting some undeserved bad press.

If you’ve been reading some of the post-Budget headlines in the past couple of months, you’d be forgiven for thinking that salary sacrifice is on death’s door, and that after April 2029, it will be no more.

What we’ve been seeing is a good deal of misleading information about what’s going to happen, what the caps and restrictions mean, and whether salary sacrifice is indeed on its last legs. But this couldn’t be further from the truth.

No, salary sacrifice isn’t dying. Yes, there are changes coming. But does that mean salary sacrifice won’t be a worthwhile benefit anymore? Absolutely not.

And it’s important to dispel some of these damaging myths going around because, if employers start acting on the misleading headlines, they could be in danger of throwing away significant value for their businesses.

What’s actually changing?

First, a refresher: from April 2029, employer and employee National Insurance contributions (NICs) will apply to salary-sacrificed pension contributions above £2,000 per employee, per year.

In a nutshell, that’s all it is. But, somewhere along the way, the headline has been lost in translation, spawning a series of myths that need dispelling before they start to cause any damage.

So let’s look at some of them:

Myth 1: Salary sacrifice is being capped

This is perhaps the most widespread myth going around, causing a good deal of misunderstanding. Salary sacrifice is not being capped. What’s being capped are the National Insurance savings above £2,000.

For employees, what that means in practice is that the first £2,000 of their salary-sacrificed contributions will still enjoy full NI savings, exactly as they do today. It’s only contributions above this threshold that will be subject to NI. Employees can still sacrifice as much as they want above that threshold – they just won’t get the full NI savings on amounts over £2,000.

Myth 2: Tax relief is being reduced

This is just plain wrong. Tax relief has not been touched at all. It’s true that there were rumours flying around before the Budget, such as how the government could change the rules on tax relief. But that was a separate issue from salary sacrifice, and one which thankfully never came to fruition.

Myth 3: Salary sacrifice won’t be worth it after April 2029

Granted, this is more of an opinion than a myth. Salary sacrifice will still be highly worthwhile for many employees and employers after April 2029. Consider that, up until a certain income bracket, most employees will not even be affected by the changes.

A typical auto-enrolment scheme requires a 5% employee contribution. To hit £2,000 in contributions at 5%, you’d need to be earning £40,000. The UK average salary sits at around £35,000–£38,000.

Most employees, then, will see exactly the same NI savings in 2029 as they do today. Both employers and employees will continue to benefit pound-for-pound on the contributions that matter most – those regular, modest contributions that build workplace pension pots.

Myth 4: Arrangements need to be unwound from 2029

We’re still waiting for detailed guidance on payroll processes and implementation. But here’s what we know: it’s the NI savings that are capped, not salary sacrifice itself. There’s nothing in the announced changes to suggest that employment contracts need to be renegotiated or salary sacrifice terms unwound for contributions above £2,000.

Employees can continue under existing arrangements. Payroll systems will need to track where the £2,000 threshold is reached and adjust NI calculations accordingly, but that’s a technical implementation question, not a fundamental restructuring of employment terms.

Myth 5: It’s not worth putting in place now

Yes, it is absolutely still worth putting in place now and holding on to, even beyond April 2029. Remember, there are still three full years of savings to take advantage of before the cap comes into effect.

How much could you save over those three years? Here are some examples based on a typical 5% employee contribution rate:

£40,000 salary: £460 total annual saving (£300 employer, £160 employee)
£75,000 salary: £638 total annual saving (£563 employer, £75 employee)
£125,000 salary: £1,063 total annual saving (£938 employer, £125 employee)

For a company with 50 employees on an average salary of £40,000, that’s £23,000 per year in savings – nearly £70,000 up to April 2029.

Let’s not get misled – salary sacrifice is still a winner

Salary sacrifice is alive and well, and will remain one of the most valuable benefits you can offer your employees.

Yes, we’re going to see changes from April 2029, but for the average employee, it’s going to be business as usual. And there will still be plenty of savings on the table for employers and employees alike.

If you’re on the fence about whether to implement salary sacrifice, I’ll say this: don’t let 2029 concerns stop you from capturing three full years of maximum value. Plus, salary sacrifice costs your business nothing to put in place. So why wait?

More details are available at NatWest Cushon’s Resource Hub where you can unlock access to research on salary sacrifice and wider workplace savings topics, plus expert insights and event recordings – all designed to help you maximise pension savings for your business and your people.