Marvin OnumonuPenfold has warned that the Government’s planned £2,000 cap on salary sacrifice for pensions will catch businesses and employees off guard.
Workers using salary sacrifice for pension contributions will lose full national insurance (NI) savings when the cap comes in from April 2029.
Under the new rules, only the first £2,000 of pension contributions made through salary sacrifice in a tax year will be exempt from NI.
Contributions above this amount will face both employer and employee NI charges.
Research found about 7.7 million UK workers use salary sacrifice for pensions, with around 3.3 million contributing more than £2,000 a year.
Chris Eastwood (pictured), CEO at Penfold, said: “Salary sacrifice has been a win-win for employers and employees for years lowering National Insurance costs while strengthening retirement savings. From 2029, that advantage will be capped.
“Anyone contributing more than £2,000 a year through salary sacrifice will lose NI savings on the excess, and employers will see their NI costs rise accordingly.
“While salary sacrifice will still offer benefits, the value proposition changes significantly for higher contributions.”
Eastwood added: “Businesses need to start modelling the financial impact now and ensure they communicate clearly with staff well ahead of implementation.
“However, businesses do still have a three-year window before the changes take effect.
“For employers not yet using salary sacrifice, or those considering switching providers, there remains a significant opportunity to capture NI savings before 2029.”
