Make hay while the sun shines: Why salary sacrifice remains a valuable benefit

Now we have certainty around the future of pensions salary sacrifice, NatWest Cushon’s Steve Watson explains what the changes mean and why this benefit will still deliver.

At long last, Chancellor Rachel Reeves has finally delivered the Budget, and we now know what’s in store for workplace pensions: from April 2029, the government will introduce a £2,000 cap on salary sacrifice pension contributions.

In the days since, I’ve been fielding a lot of questions from employers, who are feeling concerned, confused, and wondering what this means for their pension schemes: “Should salary sacrifice be ditched?” “Will the plans fundamentally change the value proposition?” “Are we going to lose out financially once the changes kick in?”.

So, allow me to clear the air and explain exactly what’s going on with these changes, because my view is that salary sacrifice remains one of the most valuable benefits employers can offer – both right now and even after April 2029.

What the salary sacrifice changes mean in practice

From April 2029, employer and employee national insurance contributions (NICs) will apply to salary-sacrificed pension contributions above £2,000 per employee, per year. That’s the headline.

But here’s what’s not changing: normal employee contributions outside salary sacrifice continue to benefit from full income tax relief.

And crucially, the first £2,000 of each employee’s salary-sacrificed contributions will still enjoy exactly the same NIC savings they do today. So, in practice, an employee earning £40,000 who contributes 5% through salary sacrifice puts in £2,000 per year. They’re entirely within the threshold. No impact whatsoever.

Don’t miss out on big salary sacrifice savings

In the meantime, if you’re an employer who already offers salary sacrifice, it’s business as usual for the next three years – nothing changes and nothing needs to be done. For those who don’t yet offer salary sacrifice, my question is: why not? The old saying ‘make hay while the sun shines’ springs to mind... and this is a key way to knock thousands off your NI bill.

Between now and April 2029, you’re looking at three full tax years of maximum savings before anything changes. You can capture the full value that salary sacrifice offers until then – no caps, no restrictions, and a good deal of potential savings for you and your employees.

Let me put some numbers to this. For example, a company with 50 employees on an average salary of £40,000, contributing 5% through salary sacrifice, is looking potentially at around £23,000 in combined employer and employee savings per year. Over three full tax years, that’s nearly £70,000.

For the employer alone that’s a l potential saving of £45,000 over 3 years that could be reinvested in the business or channelled back into enhanced pension contributions for employees. And it’s worth remembering, your employees can still see extra money in their payslips through savings on NICs. Either way, for employers not making use of salary sacrifice, you are leaving money on the table.

What about after April 2029?

This is the crux of the issue: will salary sacrifice still be worthwhile once the changes kick in?

Despite a lot of negative press on the issue recently, my view is that employers and employees alike will still be able to benefit significantly from salary sacrifice.

Here are three key reasons why:

1. A lot of your workforce may not be affected

The £2,000 cap (assuming a 5% employee contribution) equates to a £40,000 a year salary. So up to this salary level, savings for both employers and employees remain the same – nothing changes. Based on the current average salary, which is just short of £40,000, the £2,000 threshold covers typical contribution levels for most UK employees.

2. Income tax relief on pensions remains completely unchanged

This is critical and often overlooked in the headlines. All pension contributions – regardless of amount – continue to benefit from full income tax relief. For higher-rate taxpayers, that’s 40% relief. For additional-rate taxpayers, it’s 45%. The brilliant tax efficiency of pension saving isn’t going anywhere.

3. Everyone still benefits from the first £2,000

Remember, the cap isn’t removing NIC savings – it’s just limiting them. Every single employee using salary sacrifice will continue to save on NICs for their first £2,000 of contributions. That baseline benefit remains intact for your entire workforce. And you, as the employer, still save on NICs for every single employee.

What if you’re new to salary sacrifice?

If your business is already making full use of salary sacrifice, then I’m sure I’ll be preaching to the converted – keep going is my view. But if you’re an employer who’s never implemented it, now is a great time to act.

It’s worth noting that salary sacrifice costs nothing to get up and running. And if your pension scheme doesn’t offer it, then it could well be time to shop around.

Here at NatWest Cushon, we take on all the heavy lifting for the employer: we handle the payroll integration, the employee communications, and the ongoing admin. You don’t need to become a pensions expert or burden your HR team with additional work – we just get on with it for you.

So, if you’re not using salary sacrifice yet, why wait? The savings are real, the implementation is straightforward, and the window for maximum value is wide open. Put another way? The sun is shining – make hay while you can!

Want to learn more about making the most of salary sacrifice? Head over to our Resource Hub and 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.