More than one in four employers using salary sacrifice currently rely on the associated national insurance savings to fund additional pension contributions or other employee benefits, new research shows.
Employee benefits specialists warn that firms must start preparing for how these arrangements will be financed once NI advantages are curtailed in 2029, under changes announced in last month’s Budget.
The figures come from a recent Occupational Health Assessment Limited webinar attended by over 100 employers representing more than 100,000 UK workers.
The survey found that 14 per cent of employers use NI savings to make additional pension contributions, while 13 per cent use the savings to fund other employee benefits. Both figures exceed the proportion of firms (11.9 per cent) using salary sacrifice primarily to generate financial savings for the organisation itself.
Complicating matters further, 11 per cent of employers use NI savings for two or more of these purposes, while 14 per cent confirmed they do not offer salary sacrifice at all. Notably, over a third (34.5 per cent) said they were unsure how their organisation uses the employer NI savings generated.
Under reforms announced in the Budget, from April 2029 employers and employees will only be able to make NI savings on the first £2,000 of salary sacrifice per year. Beyond this limit, employees will still benefit from income tax relief, but no NI savings will apply for either party.
Although these changes are four years away, experts say the implications are far-reaching. Independent benefits specialist Steve Herbert warns that the reforms will create “significant administrative challenges”, involving payroll functions, legal advisers, pension intermediaries and providers.
Despite the scale of the forthcoming change, the survey suggests employers are slow to begin planning. Only 7 per cent say they will start preparing immediately. A further 19 per cent expect to begin in the 2026/27 tax year, with 10 per cent delaying until 2027/28. Almost half (43 per cent) remain uncertain about when planning will begin.
Herbert cautions that employers should not leave preparation too late: “Whilst the changes remain a long way off – so there is no need for immediate panic – there are lots of components to this exercise and employers should perhaps be considering how they will respond at an early stage.”
He highlights that communicating the changes to employees may be challenging, particularly given the varied ways salary sacrifice NI savings are currently used and the forthcoming £2,000 annual cap on pension salary sacrifice.
“Employers will need to carefully consider how to communicate these changes in a positive way to retain goodwill and employee engagement,” he says.
Herbert adds that organisations using NI savings to fund other benefits face an additional hurdle:
“More than one in 10 organisations use the employer NI saving to fund other employee benefits offerings. These organisations should consider how those benefits will continue to be funded if the pension saving is significantly reduced in future years.”