£30bn of savings available to employers before pensions salary sacrifice reforms take effect in 2029

UK businesses could benefit from £30bn of National Insurance savings before the reforms to salary sacrifice schemes for pensions come into force in April 2029, new analysis from accountancy and business advisory firm BDO has found.

The Government estimates that 7.7m people currently participate in ‘smart’ pensions via salary sacrifice schemes, out of a total of 18.6m private sector employees who are members of a workplace pension scheme.

This leaves almost 11 million employees who are not currently benefiting from the opportunity to make pension contributions using salary sacrifice by their employers.

Based on a conservative assessment of the pensions contributions this cohort is making, BDO estimates that the total potential savings for employers could be as much as £10bn per year, while employees could save around £4.5bn in employee NICs.

The savings available to employers and employees will depend on several factors including the number of participating employees, their average earning levels and the amount of employee pension contributions.

However, based on the national average salary of £39,000 per year, the estimated combined employer and employee NIC reductions possible for the three tax years up to 28/29 could be £439,000 for a business with 500 employees, £877,000 for a business with 1,000 employees and £1.3m for a business with 1,500 employees.

Salary sacrifice is a commonly used mechanism which helps deliver many employee benefits such as pensions, cycle to work schemes and EVs. An employee agrees to give up part of their gross salary, and in return their employer provides a benefit – in this case in the form of increased  employer pension contributions.

Because the employee’s salary is reduced, they pay less employee national insurance, while the employer benefits from reduced employer national insurance contributions. Employee pension contributions also already benefit from income tax relief.

However, not all employees will be able to participate in pensions salary sacrifice. For example, employers need to ensure that any salary sacrifice arrangements do not result in breaches of National Minimum Wage rules.  Professional advice is always advisable.

At the Budget in November 2025, the Chancellor announced that from April 2029, there will be a £2,000 cap for NIC relief for pension contributions made via salary sacrifice.

Steve Talbot, an employment tax partner at BDO said:

“At a time when employers are facing numerous cost pressures, offering a salary sacrifice arrangement to employees now could still lead to significant savings. And those employers that already offer it could choose to encourage more of their employees to take part.

Employers also need to plan ahead and prepare for the changes due in April 2029. Starting this process sooner rather than later should give sufficient time to model changes and consider how they might want to flex their benefit packages.

For employees, the reforms in April 2029 will have a variable impact. A typical employee earning an average of £39k per year and making a 5% pension contribution won’t be impacted. However, someone earning above this level and making higher contributions will be likely to be affected.”
 

ENDS

Note to editors

BDO UK operates in 17 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.

It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to the entrepreneurial, ambitious and growing mid-sized businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.

BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 169 countries and territories, with 95,000 people working out of 870 offices worldwide. It has revenues of US$11bn.
 

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