Employers should start preparing for the government’s proposed cap on salary sacrifice pension contributions to understand the impact on costs and employees ahead of the planned introduction in 2029.
In a blog post, LCP recommended that employers should assess the potential impact on their business. Additional National Insurance contribution costs may be modest for some employers but could be significant for those with high levels of salary sacrifice participation. The impact will depend on factors including employee salaries and pension contribution levels.
It also said employers should review their benefit design, particularly where they currently share National Insurance savings with employees through salary sacrifice. They should assess whether existing contribution structures will continue to deliver the intended value after 2029 and whether certain groups of employees could be disproportionately affected.
Additionally, it recommends that employers should communicate with employees early. LCP said many employees are unaware of the National Insurance savings available through salary sacrifice or do not fully understand how the arrangement works. Early communication could help employees understand the impact on take-home pay and any future changes to the rules.
It also said that employers should review bonus sacrifice arrangements and consider how existing contribution patterns may need to change before April 2029.
LCP said early planning could affect both employer costs and employee outcomes once the new rules take effect.
LCP partner Rachel Crowther says: “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.”
