Millions of workers are being encouraged to take full advantage of a little-known pension perk before new rules reduce its benefits. Experts advise employees to consider boosting their pension contributions through salary sacrifice while generous National Insurance (NI) savings are still available, as changes are set to take effect from April 2029.
What is Salary Sacrifice?
Salary sacrifice allows workers to exchange a portion of their salary for additional pension contributions. Since the money is taken from gross pay before tax and NI deductions, employees can lower their tax bill while increasing their retirement savings.
Pensions experts emphasize that now is the time to maximize this benefit before the government introduces a £2,000 annual cap on NI-free salary sacrifice pension contributions.
Expert Opinions
Jason Hollands of Bestinvest by Evelyn Partners told The Guardian that taking advantage of the scheme over the next three years “really makes sense,” especially for those planning to increase pension savings later in life.
Former pensions minister Steve Webb also urged workers to make the most of the current rules, stating: “Anything you can sacrifice before April 2029 is worth a look.”
Impact of the Rule Change
A new report reveals that millions of people are not saving enough for retirement and face a significant drop in income when they stop working. According to HMRC figures, around 7.7 million employees already contribute to pensions through salary sacrifice. More than 3.3 million pay in over £2,000 a year and are expected to be affected by the rule change.
The arrangement can also help workers reduce their taxable income, potentially avoiding higher-rate tax or lowering charges linked to Child Benefit.
Considerations
However, the scheme is only available if an employer offers it. Workers are advised to check how it could affect benefits tied to salary, including maternity pay, sick pay, and some mortgage applications.
With nearly three years until the new restrictions take effect, experts say employees who have access to salary sacrifice should consider making full use of the tax break while they still can.
