After the Spring Budget is salary sacrifice still worth it? 

Understanding the Impact of the Spring Budget on Salary Sacrifice

One of the key highlights for pensions  from last month’s Spring Budget is the decrease in employee National Insurance contributions. Effective from 6th April 2024, Class 1 National Insurance on earnings between £12,570 and £50,270 will be reduced from 10% to 8%, further to a previous reduction in January from 12%. While this reduction may seem beneficial, it does have implications for the savings arising from salary sacrifice arrangements.
Salary 2023/24 employee National Insurance saving 2024/25 employee National Insurance saving
£25,000 £125 £100
£50,000 £300 £200

Salary sacrifice has long been regarded as a valuable benefit for both employees and employers. The decrease in National Insurance contributions does mean that the benefits of Salary Sacrifice for employees has been reduced from April.

Despite the reduction in National Insurance contributions, salary sacrifice can still provide significant savings both employees and employers. Employees subject to the 8% National Insurance rate will enjoy an 8% saving on their contributions. This means that salary sacrifice remains a worthwhile option for these individuals, allowing them to maximise their pension savings.

For higher rate taxpayers, salary sacrifice also offers additional benefits. By reducing their taxable salary through salary sacrifice, individuals may find themselves in a lower tax band or become eligible for certain benefits such as Child Benefit. This presents an opportunity for higher rate taxpayers to optimise their tax position.

Overall, salary sacrifice provides a tax-efficient way for employees to receive additional benefits, while also offering significant cost savings for employers.

Care is required

All employee pension contributions are subject to both employee and employer national insurance contributions – in effect you and your people are incurring an unnecessary tax of 13.8% for the employer and up to 8% for your employees if salary sacrifice is not used.

Salary sacrifice needs to be carefully planned. Getting it wrong can impact broader benefits and/or breach legislation, which can lead to fines and reputational harm. But with careful planning and support for Mercer, change can be made to introduce a salary sacrifice arrangement for all staff, making considerable savings for you and your people.

Carla Rawlinson

- Principal, DC Pensions & Financial Wellness

Related solutions
Related insights
Related Case Studies
Related products for purchase