Employers should start preparing now for the government’s proposed 2029 cap on salary sacrifice pension contributions, LCP has argued.

The government plans to cap salary sacrifice on employer pension contributions at £2,000 a year from 2029.

With HMRC estimating that almost 7.7 million employees currently use salary sacrifice to make pension contributions, LCP said employers should assess the potential impact now to minimise disruption when the new rules take effect.

LCP warned the proposed cap would raise questions for employers over benefit and reward design and could increase employment costs, reduce take-home pay for some employees and create additional administrative requirements.

In the blog, the consultancy stated that employers should take four steps ahead of the proposed changes, starting with assessing the impact on their business, including factors such as salary levels and pension contributions.

Employers should also review their benefit design, including whether existing contribution structures will continue to deliver the intended value after 2029 and whether any groups of employees could be disproportionately affected by the changes.

In addition, LCP said employers should communicate with employees early to help avoid confusion closer to implementation and allow staff to make the most of the national insurance contribution (NIC) savings available now.

Finally, employers should plan for bonus sacrifice and 2029 timing issues, considering how existing arrangements will interact with the new rules and whether contribution patterns may need to change before April 2029.

LCP partner and blog author, Rachel Crowther, said: “Although the cap is a few years away, employers should start preparing now by understanding where the impact is likely to be felt across their business and for their employees. Those that do so will be in a strong position when the changes take effect.

“Salary sacrifice is likely to remain a key part of many reward packages, but early preparation will help employers navigate the transition while continuing to support positive outcomes for their workforce and their business.”

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