Is salary sacrifice done for? Let’s separate fact from fiction

Since the Autumn Budget, there’s been no shortage of alarming headlines about salary sacrifice after the announcement of a cap. Reading some of them, you’d think the benefit is on its last legs – all but destined to fade out after April 2029. But is this really the case? 

Changes are coming, that’s for certain. But the problem is that some of the information circulating has been misleading – and if employers start making decisions based on these misconceptions, they risk losing out on significant value for their business. 

Our view is that salary sacrifice – or salary exchange, as we like to call it – is very much still a winner. There’s plenty of juice to squeeze from this benefit. That’s why we’re taking this opportunity to set the record straight and tackle some of the most damaging untruths head-on. But first, let’s remind ourselves what this is all about.  

What’s happening with salary sacrifice? 

Here’s what you need to know: From April 2029, employer and employee national insurance contributions (NICs) will apply to salary-sacrificed pension contributions above £2,000 per employee, per year. 

That’s it. Somewhere along the way, though, a series of untruths and misinterpretations has surfaced around this statement, causing all sorts of confusion. So, let’s sort fact from fiction.  

“Salary sacrifice is being capped”  

FALSE. This is perhaps the most widespread misconception. In fact, salary sacrifice itself is not being capped. What’s being capped are the NI savings above £2,000. 

For employees, what that means in practice is that the first £2,000 of their salary-sacrificed contributions will still enjoy full NI savings, exactly as they do today. It's only contributions above this threshold that will be subject to NI. Employees can still sacrifice as much as they want above that threshold – they just won't get the full NI savings on amounts over £2,000. 

“Tax relief on pension contributions is changing” 

FALSE. Tax relief has not been touched at all. It’s true that there were rumours flying around before the Budget about potential changes to tax relief rules. But that was a separate issue from salary sacrifice, and one which thankfully never saw the light of day. 

“Salary sacrifice will still be worth it after 2029”  

TRUE. Salary sacrifice will still be highly worthwhile for many employees and employers after April 2029. It’s needs to be reiterated that, up until a certain income bracket, most employees will not even be affected by the changes. Here’s why... 

A typical auto-enrolment scheme requires a 5% employee contribution. To hit £2,000 in contributions at 5%, you’d need to be earning £40,000. The UK average salary sits at around £35,000–£38,000. Most employees, then, will see exactly the same NI savings in 2029 as they do today. Both employers and employees will continue to benefit pound-for-pound on the contributions that matter most – those regular, modest contributions that build workplace pension pots.

“Salary sacrifice arrangements need to be unwound from 2029” 

FALSE. While detailed guidance on payroll processes and implementation is yet to be announced, here’s what we do know: it’s the NI savings that are capped, not salary sacrifice itself. So, there’s nothing in the announced changes to suggest that employment contracts need to be renegotiated or salary sacrifice terms unwound for contributions above £2,000. 

Employees can continue under existing arrangements. Payroll systems will need to track where the £2,000 threshold is reached and adjust NI calculations accordingly, but that’s a technical implementation question, not a fundamental restructuring of employment terms. 

“There are still three years of full savings to capture” 

TRUE. Correct, there are still three full years of savings to take advantage of before any changes come into effect – which is why it’s absolutely still worth putting salary sacrifice in place now and holding on to, even beyond April 2029.  

How much could you save over those three years? Here are some examples based on a typical 5% employee contribution rate: 

• £40,000 salary: £460 total annual saving (£300 employer, £160 employee)  

• £75,000 salary: £638 total annual saving (£563 employer, £75 employee)  

• £125,000 salary: £1,063 total annual saving (£938 employer, £125 employee) 

For a company with 50 employees on an average salary of £40,000, that's £23,000 per year in savings – nearly £70,000 up to April 2029. 

The bottom line 

Salary sacrifice remains one of the most valuable employee benefits available. Yes, changes are coming in April 2029, but for the average employee, it’s business as usual. And there will still be plenty of savings on the table for both employers and employees. 

For businesses considering salary sacrifice, the message is clear: don’t let 2029 concerns prevent you from capturing three full years of maximum value. Pick the low-hanging fruit now. Salary sacrifice costs nothing to implement, and NatWest Cushon handles the entire process – from payroll integration and employee communications to ongoing administration – making it simple to deliver this valuable benefit without adding to your HR team’s workload. 

Get in touch with us about salary sacrifice 

Wondering if salary sacrifice could deliver real value for your business? Get in touch with our team today to explore how salary sacrifice can benefit your employees and your bottom line.  

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NatWest Cushon