Salary sacrifice changes will impact over three million employees

The removal of full tax-free salary sacrifice on pensions with a new £2,000 limit will hit over three million employees at 290,000 companies, according to government figures.

The change to pension salary sacrifice is due to come into effect from 6 April 2029 and will see a new £2,000 limit on the amount of contributions employees can make into a salary sacrifice scheme free of tax and national insurance contributions (NICs), hitting schemes run by UK employers.

Almost eight million employees currently use salary sacrifice to make pension contributions. Of these, over three million sacrifice more than £2,000 of salary or bonuses.

However, just over half of employees will fall below the threshold based on current HMRC estimates, meaning over four million pension savers will not be affected.

The government said:

'The government supports and incentivises pension saving and has retained Income Tax and NICs reliefs on pensions contributions that are worth over £70 billion per year.

'Most other salary sacrifice opportunities were closed in 2017. Salary sacrifice for pensions contributions remains, and its cost as a relief has increased markedly from £2.8 billion in forgone NICs in tax year 2016 to 2017, rising to £5.8 billion in tax year 2023 to 2024. Were no changes made, it is expected that this would nearly triple to £8 billion by tax year 2030 to 2031.'

Internet link: GOV.UK