Employers should continue to offer salary sacrifice on pension contributions despite the upcoming changes that will see national insurance (NI) charged on contributions above £2,000, according to Everywhen.

From April 2029, salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NI contributions.

This means that salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system and therefore be subject to both employer and employee NICs.

Research conducted by Everywhen found that just 48 per cent of employers offered salary sacrifice for pension contributions.

The consultancy called on employers to consider maximising the benefits of salary sacrifice while they can and start to plan for the new rules.

“Utilising salary sacrifice for pension contributions is a great way for employees to maximise their investments,” said Everywhen client director, Sorangi Shah.

“It is a simple way to significantly reduce income tax and NI. This increases take-home pay for employees while still being able to make the same or greater payments into their pension.”

Employers utilising salary sacrifice for pension contributions were asked what they do with the NI savings they make, with 34 per cent using them to fund their benefits platform.

Three in 10 (30 per cent) shared some of their NI savings with employees, while 28 per cent used them to fund other benefits and 27 per cent gave all their NI savings back to employees.

More than a quarter (26 per cent) of those using salary sacrifice for pension contributions kept NI savings within the business.

Everywhen expressed concerns about the 68 per cent of employers who said they would not make any changes, had not made any decisions, were putting off considering the impact of the changes, or did not know what to do when the reform came into effect.

More than a third (35 per cent) of employers said they would review the impact of the changes nearer the time, while 30 per cent would promote the benefits of the existing scheme is it was already in place.

Nearly a quarter (24 per cent) planned to set up salary sacrifice for the first time to take advantage of the savings, although 18 per cent said they would not make any changes and 11 per cent were yet to decide.

“Employees and employers can still maximise their savings for another three years,” Shah stated. “This is definitely worthwhile.

“It is great that nearly a quarter of employers are still considering setting up salary sacrifice for their pension schemes for the first time. We would urge them to do so as soon as possible to make the most of the considerable benefits before the changes come into place in April 2029.

“Even after the NI savings cap is in force, salary sacrifice for pension contributions will still be worthwhile. The employer and employee will still receive up to £2,000 worth of NI savings. But it is better to make the most of the greater opportunity while it is still in place.”

Everywhen argued it was wise for employers to take pension advice on how their salary sacrifice scheme is set up currently, while those who were planning to set one up for the first time were urged to consider how they do this to ensure its compliant when the rules change.

“For employers who allow salary sacrifice for pension contributions, the message is: review it and don’t forget to budget for the impact the cap will have from 2029,” Shah said.

“Communicate the scheme to ensure everyone makes the most of it. For employers who don’t have salary sacrifice set up, the message is to set it up now and receive the higher savings while you can. From 2029, these schemes will still be attractive, just not quite as attractive as they are now.”

---