Some thoughts ahead of the Autumn Statement on Wednesday 26 November 2025
It is widely reported the Chancellor will be making significant changes to pension salary sacrifice arrangements as part of her strategy to fill some of the Government’s financial ‘blackhole’.
The UK government lost an estimated £4 billion in annual revenue during the 2023-24 tax year due to pension salary sacrifice schemes, -according to HMRC data. This figure is primarily comprised of approximately £2.9 billion from reduced employer National Insurance Contributions (NICs) and about £1.2 billion in employee savings (Source: The Society of Pension Professionals from HMRC – stats here).
Despite this significant fiscal cost, proponents argue that these schemes represent a positive and cost-effective investment. The rationale is that the tax efficiency provided by salary sacrifice actively encourages greater pension saving among employees, offsetting the immediate revenue impact through long-term fiscal stability derived from a better-funded retirement system.
Pension salary sacrifice is a popular way to help employees save towards their retirement. Currently, under a salary sacrifice arrangement an employee agrees to sacrifice part of their salary, and in return the employer agrees to pay the pension contributions on behalf of the employee. Both the employer and employee will pay National Insurance on the lower, post-sacrifice earnings.
What approach is being considered?
Whilst nothing specific has been announced we are aware of a review paper commissioned by HMRC (published May 2025) which shows they tested three principal approaches with employers (small batch of 41 businesses which offered pension salary sacrifice and 10 which did not):
- Remove employer NIC exemption completely for pension contributions made via salary sacrifice (so employers would pay NIC on the notional salary).
- Remove both employer and employee NIC (and potentially income-tax) advantages on salary-sacrificed amounts.
- Keep relief but limit it above a small threshold with £2,000 being proposed per-year threshold as the “least disruptive” option!
If any of the proposals were introduced this will potentially have a disruptive impact assisting employees who are saving for their retirement.
What we know (and don’t know) about transitional rules
Whilst we need to wait until 26 November, past practice (where changes were made to salary sacrifice arrangements) involved HMRC using transitional provisions protecting arrangements already in place before a specified date for a limited period. That precedent suggests the Government could choose to protect existing contractual arrangements entered into before the implementation date (or before announcement), but the scope and length of that protection will be eagerly awaited.
Practical implications for employers (what to prepare for now)
Employers will want to consider their position once we know what the Chancellor is proposing. Consideration will need to be given to:
- Determining the cost impact the announcement has for the employer and your employees.
- Will the announcement affect any other benefits which are provided in conjunction with a salary sacrifice?
- What messaging needs to be shared with employees?
Conclusion
The rumour mill is turning very aggressively at present. The indications suggest the benefits of entering into a pension salary sacrifice arrangement will at best be limited, if not removed completely. Although one hopes that the Government listens to the concerns of the pension industry and the negative impact that any changes will have on employees saving for their retirement, especially as state pension is becoming potentially untenable.
However, should the Government press ahead with any changes, we would hope that wider consultation and the use of transitional legislation will help to soften the impact for employers and employees.
Let’s talk
If you want to discuss the potential impact any announcement will have for your business, please contact one of our Employment Taxes team to gain a better understanding of the options available to you.
