Why Salary Sacrifice Is Still Worth It, Despite the Autumn Budget

Salary sacrifice has long been one of the most effective ways for employers to add value to their workplace benefits package while helping employees make their money go further.

So, when the Autumn Budget 2025 announced changes to the tax treatment of pension salary sacrifice, it was understandable that employers and employees might question whether the arrangement is still worthwhile.

The short answer is yes.

The rules are changing from April 2029, but salary sacrifice remains an attractive option for both employers and employees. The key is understanding what is changing – and what isn’t.

What is changing?

Under the current rules, an employee can agree to give up part of their salary in return for their employer paying an equivalent amount into their pension. Because the sacrificed salary is no longer treated as cash earnings, both the employee and employer can benefit from reduced National Insurance contributions.

From April 2029, the government will introduce a £2,000 annual cap on the amount of pension contributions made through salary sacrifice that can receive the National Insurance exemption.

Any salary sacrificed above £2,000 will still benefit from the usual Income Tax treatment of pension contributions, but National Insurance will apply to the excess.

Importantly, the change doesn’t come into effect until April 2029. There is therefore no immediate reason for employers or employees to abandon salary sacrifice.

The benefits for employees

For employees, salary sacrifice can still be an efficient way to build a pension.

Under the current arrangements, reducing gross salary through salary sacrifice can mean paying less Income Tax and National Insurance, while the sacrificed amount is paid directly into the employee’s pension.

This can make pension saving more affordable because the reduction in take-home pay can be smaller than the amount actually being contributed to the pension.

Even after the 2029 changes, the first £2,000 of annual pension contributions made through salary sacrifice will retain its National Insurance advantage. Contributions above that level will continue to receive Income Tax relief, subject to the normal pension tax rules.

There can also be wider benefits. Depending on how an employer operates its scheme, salary sacrifice may help employees maximise their pension contributions without having to find the full additional contribution from their post-tax income.

However, salary sacrifice isn’t suitable for everyone. Reducing contractual salary can affect certain calculations, such as mortgage affordability or eligibility for some statutory benefits, so employees should understand the implications before entering into an arrangement.

The benefits for employers

Salary sacrifice can be equally valuable from an employer’s perspective.

At present, employers can generally save on their own National Insurance contributions when employees sacrifice salary into their pension. Some employers choose to pass some or all of these savings back to employees by increasing pension contributions, while others retain the saving as part of the overall cost of their benefits package.

Either way, salary sacrifice can help employers make their remuneration package more attractive without necessarily increasing headline salaries.

It can also support wider employee benefits and financial wellbeing strategies. A workplace pension is more than a compliance requirement: when employees understand how their pension works and can see the benefits of contributing efficiently, it can become a valuable part of an employer’s overall proposition.

From April 2029, employers will need to account for National Insurance on pension salary sacrifice above the £2,000 annual threshold. This means businesses may need to review their existing arrangements and consider whether changes to contribution structures, employee communications or benefit strategies are appropriate.

Salary sacrifice is about more than pensions

Although the Budget announcement focused attention on pension contributions, salary sacrifice can encompass a wider range of workplace benefits.

Depending on the employer’s scheme, arrangements can include benefits such as electric vehicles, cycle to work schemes and certain childcare-related benefits.

The tax and National Insurance treatment varies between benefits, so employers should not assume that the new £2,000 pension limit applies to every form of salary sacrifice.

This is an important point. The Budget has changed one aspect of salary sacrifice, rather than removing the concept altogether.

What should employers do now?

There is no need for businesses to make knee-jerk changes.

Instead, employers should take the opportunity to review how salary sacrifice currently operates within their benefits strategy. This could include looking at how many employees use the arrangement, the level of pension contributions being made, the National Insurance savings currently generated and how those savings are used.

Communication will also be important.

Employees may hear that the government is “changing salary sacrifice” and assume that the benefit is disappearing altogether. Clear communication can help explain what the changes actually mean and prevent unnecessary confusion.

For employers with higher earners or employees making substantial pension contributions through salary sacrifice, it may also be worth considering how the 2029 changes could affect the overall remuneration package.

Still a valuable employee benefit

The Autumn Budget has undoubtedly made salary sacrifice slightly less generous for larger pension contributions from 2029. But that is very different from making it irrelevant.

For employees, the Income Tax benefits remain and the first £2,000 of pension salary sacrifice will continue to benefit from the National Insurance exemption. For employers, salary sacrifice remains a valuable tool for structuring benefits, supporting pension engagement and strengthening the overall employee proposition.

The important thing is to look beyond the headline.

Rather than asking whether salary sacrifice is still worthwhile, employers should be asking how they can use it most effectively within the wider context of their employee benefits and financial wellbeing strategy.

How Kellands Corporate can help

At Kellands Corporate, we help employers review and develop workplace benefits strategies that work for both their business and their people. From salary sacrifice and workplace pensions to wider financial wellbeing and employee benefits, our team can help you understand the implications of changing legislation and identify opportunities to keep your benefits package competitive and effective.

If you would like to review your current salary sacrifice arrangements or understand what the 2029 changes could mean for your business and employees, speak to Kellands Corporate today.

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