UK Budget 2025: PwC comments on employment tax and salary sacrifice

Paula Letorey, Workforce partner at PwC, said: 

“In a bid to bolster the public purse, today’s Budget risks reducing employees’ take-home pay while placing additional pressure on businesses through rising employment costs – although with the changes being deferred until April 2029.

“This certainty may remove some of the hesitancy in investment and hiring as there is more visibility of longer-term employment costs, and when the cost increases may arise. However, the increase in the National Minimum Wage announced yesterday may reduce the ability for some employee populations to utilise salary sacrifice from 2026 – well ahead of the broader pension salary sacrifice changes from 2029. These changes come as employers are still absorbing last year’s NIC reforms and preparing for the Employment Rights Bill – intensifying cost pressures amid economic uncertainty.

“Salary sacrifice for pensions remains a valuable tool. For a large proportion of auto-enrolled workers, these changes have no impact and both employers and employees continue to benefit from savings. For higher earners or those making larger contributions, the impact will be felt by both parties – though employers still gain £300 in saving per employee at the £2,000 cap, which is far from negligible. 

“All firms face added complexity and administrative burdens, which will hit smaller, resource-stretched businesses particularly hard. Employers need to start planning early, and well in advance of 2029, both to understand what opportunities the announcements allow for efficient reward in the period before the changes take effect, but also to manage the implementation of the restricted NIC relief from April 2029. The cost of getting it wrong is high: additional NIC liabilities, penalties and reputational damage.”

Commenting on pension changes, Gareth Henty, Head of Pensions at PwC, said:

“The government’s plan to introduce a £2,000 annual cap on NI-free pension contributions via salary sacrifice, marks a seismic shift in workplace savings policy. Using salary sacrifice for pension contributions remains a highly beneficial approach for pension saving, and the longer lead time allows employers to review their approach in advance of April 2029. Meanwhile, the increase to the state pension by up to £550 a year offers welcome relief for retirees, it also underscores the need for long-term fiscal sustainability and private savings.

“The change risks reducing the amount of money being paid into pension savings, at a time when the nation is already facing a significant issue of under-saving for retirement. The complexity and costs associated with adjusting existing arrangements are unlikely to be welcomed by employers and could have far-reaching implications for workplace pension saving. All eyes now turn to the expected Pensions Adequacy Review raising important questions about fairness and the direction of long-term savings policy.”

Our full Budget reaction