Salary sacrifice and national insurance contributions (NIC) changes announced in the Budget will force employers to face critical decisions around business costs and employee benefits, according to Hymans Robertson. Only 7% of respondents from a poll of corporate clients at the firm’s recent webinar on the Budget announcements felt salary sacrifice changes will have minimal or no impact. In contrast, a fifth (20%) of those polled said that they expected budget changes to have a major impact on their business. The leading pensions and financial services consultancy warns that there is a clear need for employers to undertake careful planning in advance of the changes in 2029.
The poll findings, highlight the significant change that corporates believe is on the horizon with employers likely to be reconsidering their approach. Whilst nearly a third (30%) of those polled said they currently pass on some or all NIC savings to members, benefiting members savings, worryingly, 13% of schemes now believe it’s highly likely that they will need to review current pension contribution structures following the budget announcement.
Commenting on the findings, Hannah English, Head of DC Corporate Consulting, Hymans Robertson, said: “The changes to salary sacrifice arrangements announced by the Chancellor mean employers must start considering their options to ensure cost effectiveness and positive employee outcomes. While some organisations may experience only a modest impact, for many the financial implications could be substantial. This requires employers to plan carefully and consider a range of strategies.
“Nearly a third of those in our poll said that they currently pass on NIC savings to employees, but this practice faces new challenges following the recent budget changes. Both employees and employers are likely to be worse off under the revised rules, creating pressure on benefit structures and cost management. Employers will need to consider whether maintaining current benefit levels remains affordable as well as considering how announced salary sacrifice changes might impact member outcomes.
“Some employers are considering pension scheme redesign, with 13% saying it is highly likely they will need to review their current structure. This signals significant change ahead and raises important questions about how contribution structures and sharing of NIC savings will evolve in the future and support member retirement savings.
“Despite this, employers must take a measured approach, rather than rushing decisions. There is a window of opportunity before the rules change in 2029, and both employers and employees should maximise the benefits of salary sacrifice usage available currently. The change creates a window of opportunity to engage staff with pensions and remind them the benefits of saving today whilst the rules still exist in their current form. This is a win-win, supporting the business to maximise the tax efficiency of providing pensions and helping, in a small but meaningful way, with improving member outcomes.
“Looking ahead, employers have time to consider options such as paying more into pensions and less in salary. However, these decisions must reflect what employees value and consider the overall reward package. The release of Defined Benefit surpluses could also help offset an increase in pension costs. Most importantly however a thoughtful, strategic approach will be essential to balance cost, compliance, and member outcomes. Employers will need to start considering now so that the range of options open to them isn’t reduced as the 2029 date looms.”
“Our modelling suggests impact is uneven. Contribution offerings and workforce pay levels matter. Employers with lower-paid workforces or less generous contribution designs are likely to be hit least, whereas employers will higher earning workforces who are saving more into pensions today will see a larger increase in pension costs because of the salary sacrifice change. Impacted employers should take proactive steps to understand the impacts for their businesses and then consider options to manage these from 2029. Early planning now will best support employers to make informed decisions about their future pension strategy and how to make the most of the time before the rules change.”
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