Employers should continue offering salary sacrifice for pension contributions despite planned changes to tax rules, according to research from Everywhen.

The study found that fewer than half of UK employers, 48%, currently provide salary sacrifice arrangements for pensions, even though the mechanism offers tax and cost advantages for both staff and businesses.

Under salary sacrifice schemes, employees exchange part of their salary for increased pension contributions, reducing income tax and National Insurance liabilities while maintaining or increasing retirement savings.

Sorangi Shah, client director at Everywhen, said the arrangement remained highly beneficial. “It is a simple way to reduce income tax and National Insurance, increasing take-home pay while maintaining pension contributions,” she said.

Employers also benefit through lower National Insurance costs. The research found that 34% of businesses use these savings to fund benefits platforms, 28% reinvest them in other employee benefits and 30% share some of the savings with staff. Around 26% retain the savings within the business.

However, changes due from April 2029 will alter the landscape. The government plans to cap the National Insurance exemption on salary sacrifice pension contributions at £2,000 per year, with contributions above that threshold becoming liable for National Insurance.

Despite the forthcoming reforms, Everywhen warned that many employers have yet to prepare. Around 68% of respondents said they had not made any decisions, were delaying action or were unsure how to respond to the changes.

Shah said businesses still had time to benefit from the current system. “Employers and employees can maximise savings for the next three years, which remains worthwhile,” she said, noting that higher-rate taxpayers and those affected by tax thresholds stand to gain the most.