More this one in four employers using salary sacrifice currently use these national insurance savings to fund additional pension contributions or other employee benefits.
Employee experts are warming firms they need to start planning, as to how they might fund these benefits from 2029, when these NI savings will be curtailed, due to changes announced in last month’s Budget.
This new research shows how employers are currently using salary sacrifice. The figures come from a recent webinar run by Occupational Health Assessment Limited — attended by more than 100 employers, who represent more than 100,000 UK-based employees.
Overall, it found that just over 14 per cent of employers used their NI savings to make additional pension contributions for employees, with 13 per cent of employers used these savings to fund other employee benefits. Both of these are higher than the percentage of firms ( 11.9 per cent) who said they used salary sacrifice schemes to make financial savings for the organisation.
To complicate matters further, 11 per cent of firms said they use the NI savings for at least two of these three factors.
However, while 14 per cent of firms confirmed they did not offer salary sacrifice, more than one in three (34.5 per cent) said they were not sure how the savings were used.
In last month’s Budget the Chancellor announced restrictions to salary sacrifice from April 2029. From this date both employers and employees will only be able to make national insurance savings on up to £2,000 of salary sacrifice each year. Employees can still make tax savings on salary sacrificed over this limit, but there will be no further NI benefit for either employers or employees.
These changes won’t be implemented for four years, giving firms time to plan for what employee benefits expert Steve Herbert describes as “significant administrative challenges”.
However the survey showed the vast majority of employers are not making immediate plans for these changes. Just over 7 per cent said their organisation would start planning for these proposed changes immediately.
In contrast 19 per cent said they would start planning in the 2026/27 tax year, with 10 per cent not anticipating starting planning until the following year (2027/28 tax year).
Almost half (43 per cent) said they were not sure when their organisation would start to prepare for these changes.
Independent benefit expert Steve Herbert said: “Whilst the changes remain a long way off – so there is no need for immediate panic – there are however lots of components to this exercise and employers should perhaps be considering how they will respond at an early stage.
“This is particularly important given that the scope of the change may encompass external payroll professionals, employment law experts, pension intermediaries and pension providers.
“It should also be noted that workforce communications regarding this change will be potentially complicated by the wide range of objective and usage of this facility, and indeed the proposed annual cap of £2,000 for salary sacrificed pension contributions from 2029. Employers will need to carefully consider how to communicate these changes in a positive way to retain goodwill and employee engagement.”
He adds: “Finally, and not least, more than 1 in 10 organisations use the employer National Insurance 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.”
