Budget 2025 – Pension scheme employers: what do the salary sacrifice changes mean for you?

As was widely predicted, the Budget contained a key Pensions announcement that salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NICs, from April 2029.

We examine how this will affect employers, and the ways in which schemes may also feel its impact.

Background

Employers do not pay NICs on their contributions to employees’ pensions, as contributions to registered pension schemes are exempt.

Many employers currently choose to offer ‘salary sacrifice’ (or ‘salary exchange’) arrangements as part of their reward offering, with employees agreeing to vary their contract with a reduction in salary in exchange for the employer paying both the employer and employee pension contributions amounts as an employer pension contribution. This means that the employer only pays NICs on the employee’s lower, post-sacrifice level of salary, with some employers also passing on part of the NIC saving they make to the employees.

Employees can currently use salary sacrifice to pay up to £60,000 of contributions into their pension scheme, with income tax and NICs relief available on the whole of that contribution. But the Budget introduces a new threshold of £2,000 (from 2029), above which contributions will incur NICs at standard rates.

The change is anticipated to raise up to £4.7 billion in 2029-30 and £2.6 billion in 2030-31.

What do employers need to consider? Practical steps and questions

Employers will need to:

• Take time and advice, to ensure they understand what the changes mean for them
• Assess the impact of the change on them as a business, and address whether they wish to take any steps to mitigate any increased costs they face
• Understand that implementing any changes may require a review of contractual arrangements and consultation with employees in accordance with legal requirements
• Consider the employment law implications of making any changes
• Communicate any changes clearly and effectively
• Check that any relevant systems are updated to process the changes, in due course.

Affected pension schemes, trustees and employers should be prepared to face a likely rise in queries from members about the coming changes, the effect on their take home pay and pension contributions, and the actions they should take.

How TLT can help

TLT’s Pension, Incentives and Employment experts can advise on salary sacrifice generally, the Budget’s changes to it in respect of pensions, and how any changes to mitigate the impact of the change can be implemented.

Speak to your usual TLT Pensions team contact for more information, and to discuss any aspects of this.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2025. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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