After weeks of speculation, the UK’s November 2025 Budget has introduced proposed changes to pension salary sacrifice schemes – also referred to as pension salary exchange – which allow employees to exchange part of their salary for increased pension contributions.
In this article, we’ll summarise what’s been announced, what it could mean for employees and employers, and how your organisation can prepare over the coming years.
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A change is coming to pension salary sacrifice
The Budget included a proposal to remove National Insurance (NI) savings on pension contributions paid in via salary sacrifice above £2,000 per year.
Salary sacrifice is a long-standing arrangement where employees give up part of their gross pay in exchange for benefits, such as pension contributions. In return, both employers and employees benefit from reduced tax and National Insurance contributions.
Under the proposal, employees will still be able to sacrifice salary into their pension at any amount they choose. However, any amount above £2,000 per year would become subject to NI costs for both employers and employees.
What this means for employees
There is still plenty of positive news for employees:
- These changes are not immediate. They are planned to take effect in April 2029, meaning employees still have more than three years to make the most of the existing tax advantages.
- Those earning £40,000 or below and saving at default contribution rates of 5% are expected to see no change to their NI savings at all.
- It is also likely that higher-rate taxpayers will still be able to use salary sacrifice to reduce their net adjusted or taxable income. This means salary sacrifice is expected to remain an important and valuable benefit for many employees, even if the proposed changes go ahead.
What this means for employers
Employers can continue to claim full NI savings through pension salary sacrifice arrangements until April 2029.
After that point, savings are expected to reduce but not disappear altogether. Businesses are still forecast to benefit by around £300 per employee per year, even under the proposed rules.
It is also important to note that other salary sacrifice schemes such as Cycle to Work, Electric Vehicle and the workplace nursery salary sacrifice scheme will not be subject to any cap on NI savings.
How employers can help employees make the most of their money
With several years before any changes take effect, employers have a significant opportunity to help employees maximise the value of salary sacrifice and reduce their financial stress.
Financial wellbeing platforms like Maji are increasingly used to support employees in understanding their options, improving tax efficiency, and making informed financial decisions.
Below are examples of just some of the schemes that Maji offers clients:
Workplace nursery salary sacrifice
Employees can pay nursery fees through salary sacrifice at any registered UK nursery. This allows parents of children aged 0–5 to benefit from significant National Insurance savings while reducing monthly childcare costs.
Holiday exchange
Employees can purchase additional annual leave through salary sacrifice, giving them greater control over their time off while benefiting from income tax and National Insurance savings. Employers also benefit from reduced NI costs when staff use the scheme.
Bonus exchange
Employees can contribute part or all of their bonus into their pension via salary sacrifice. This can reduce tax and National Insurance on bonuses by up to 62%, making it particularly valuable for higher earners focused on improving the efficiency of their retirement savings.
Car and bike salary sacrifice
Employees can lease electric or hybrid vehicles, bikes, and cycling equipment through salary sacrifice arrangements. These schemes provide tax-efficient access to sustainable travel options, while employers are supported with setup and ongoing administration.
Deals and discounts
Employees can access discounts and cashback offers across retailers, supermarkets, cinemas, gyms, and more, saving up to £1,000 per year on everyday spending.
1:1 financial coaching
Employees can receive personalised guidance from a qualified financial coach to help them understand their options, make informed decisions, and build a plan to improve long-term financial outcomes.
Preparing for what comes next
Employers may already be receiving questions from employees about what the Budget means for their pay and benefits. Clear communication and access to reliable guidance will be essential over the coming years.
Financial wellbeing providers, such as Maji, are well positioned to support organisations with these enquiries, reducing the burden on HR teams while helping employees understand and make effective use of their benefits.
As more detail emerges, organisations should review their salary sacrifice strategy and ensure employees understand how to make the most of existing arrangements before any changes take effect.
If you’d like to explore how salary sacrifice and financial wellbeing tools could work in your organisation, you can book time to speak with a specialist and understand what support may be available.
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