UK employers could unlock up to £30bn in National Insurance savings over the next three years by expanding the use of salary sacrifice pension schemes, as businesses prepare for new limits due to take effect in 2029.
The opportunity comes at a time when organisations are facing sustained cost pressures, with many looking for ways to manage rising wage bills and tax changes without cutting benefits.
A new analysis from BDO, an accountancy and business advisory firm, suggests that millions of employees are not yet using salary sacrifice arrangements, leaving significant savings on the table for both employers and staff.
Millions not using salary sacrifice schemes
The government estimates that 7.7 million people currently contribute to pensions through salary sacrifice, out of 18.6 million private sector workers enrolled in workplace pension schemes.
That leaves almost 11 million employees who are not currently benefiting from the arrangement.
BDO said that, based on a conservative assessment of contributions, employers could save up to £10bn per year in National Insurance contributions if uptake increases, while employees could collectively save around £4.5bn annually.
Salary sacrifice allows employees to exchange part of their gross salary for employer pension contributions. Because the taxable salary is reduced, both employer and employee National Insurance contributions fall, while pension contributions continue to receive income tax relief.
The scale of potential savings becomes more significant at organisational level. Based on average salary assumptions of £39,000, combined National Insurance savings across the next three tax years could reach £439,000 for a business with 500 employees, rising to £1.3m for employers with 1,500 staff.
Reform deadline puts pressure on employers to act
The window for maximising the savings is time-limited. At the Autumn Budget in November 2025, the government confirmed that from April 2029, National Insurance relief on pension contributions made through salary sacrifice will be capped at £2,000.
The move forms part of a wider effort to reduce the cost of tax reliefs and reshape how pension incentives are delivered.
Steve Talbot, an employment tax partner at BDO, said employers still had time to benefit from the current system before the rules change. “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,” he said.
Talbot said the impact on staff would depend on earnings and contribution levels. “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.”
Practical and compliance considerations remain
While salary sacrifice schemes are widely used, they are not suitable for all employees. Employers must ensure that any arrangement does not reduce pay below National Minimum Wage thresholds, which can limit participation for lower-paid workers.
There are also administrative and communication challenges. Expanding salary sacrifice requires clear explanation to employees, as well as updates to payroll systems and employment contracts.
Despite these considerations, experts say the financial case is likely to attract attention from employers seeking alternatives to more disruptive cost-cutting measures such as hiring freezes or redundancies.
With the 2029 deadline approaching, the analysis suggests that salary sacrifice could play a more prominent role in how organisations manage both pension provision and employment costs in the coming years.
William Furney is a Managing Editor at Black and White Trading Ltd based in Kingston upon Hull, UK. He is a prolific author and contributor at Workplace Wellbeing Professional, with over 127 published posts covering HR, employee engagement, and workplace wellbeing topics. His writing focuses on contemporary employment issues including pension schemes, employee health, financial struggles affecting workers, and broader workplace trends.
- William Furney
- William Furney
- William Furney
- William Furney
