Autumn Budget 2025 puts workplace pensions in the spotlight

Yesterday’s budget brought potential changes to Pension Salary Sacrifice (or Exchange) – essentially capping the Employer and Employee National Insurance saving to the first £2,000 per annum sacrificed.

The changes are scheduled to commence on 6^th April 2029, but there are some considerations that your business and your employees need to think about in the interim.

The headlines

• £2,000 annual cap on NIC savings on Pension Salary Sacrifice contributions from April 2029.

• For example, for an employee sacrificing £5,000 per annum - this means potentially an additional £450 per annum in National Insurance costs for employers at the current 15% rate. Employees would lose £60-£240 per annum in savings based on the same £5,000 per annum contribution.

• The Salary Sacrifice cap would still save employers £300 per annum and employees would still benefit from £40-160 per annum. Employees would also still benefit from tax relief at their highest marginal rate - as well as avoiding punitive tax thresholds at both £60-80,000 (when claiming Child Benefit) and above £100,0000 of annual earnings. For contributions to relief at source schemes, Pension Salary Exchange also avoids the need for higher rate taxpayers to reclaim higher tax relief.

Employer considerations

In terms of the high-level things to be thinking about, we suggest:

• Map your exposure - who uses Pension Salary Sacrifice, at what levels and in which business units / entities?

• Identify any "NIC recycling" commitments - have you made formal or informal promises to share employer NIC savings with staff to boost pension contributions?

• Use the window - changes are not scheduled until 2029 (and ultimately may not happen), so employees should think about maximising savings between now and then.

• Bonus sacrifice - think about promoting for the current and following three years to utilise the savings before any rule changes.

• Audit your wording - employment contracts, sacrifice agreements, handbooks and scheme rules: are your agreements robust and are potential changes in the law covered?

• Scenario test the reward cost - what might happen to your total compensation budget assuming this becomes a reality?

• Think about your contribution structure – might there be an argument to move towards a non-contributory pension scheme in advance of April 2029?

• What are the practicalities? what options will you have from a payroll perspective to embrace the legislation when it comes?

• Communicate with your employees - so you can explain to employees that any changes are driven by legislation, but that a window of opportunity exists.

• Speak to your professional advisers - talk through how the above affects your business and your employees, and create a plan.

Thankfully there were no immediate changes to what can be paid into pensions and the tax position of benefits at retirement.