Workers urged to ‘max out’ pension tax break with 1 scheme | Personal Finance | Finance
Millions of workers can make the most of a little-known pension perk before new rules reduce its benefits. Experts say employees should consider boosting contributions through salary sacrifice while generous National Insurance (NI) savings remain available, with changes due to come into force from April 2029.
Salary sacrifice allows workers to exchange part of their pay for extra pension contributions. Because the money is taken from gross salary before tax and NI are deducted, employees can cut their tax bill while increasing their retirement savings. Pensions experts say now is the time to “max out” the benefit before the Government introduces a £2,000 annual cap on NI-free salary sacrifice pension contributions.
Jason Hollands, of Bestinvest by Evelyn Partners, told The Guardian that taking advantage of the scheme over the next three years “really makes sense”, particularly for those planning to increase pension savings later in life.
Former pensions minister Steve Webb also urged workers to make the most of the current rules, telling the news outlet: “Anything you can sacrifice before April 2029 is worth a look.”
It comes after a new report found millions of people are not saving enough for retirement and risk a sharp drop in income when they stop working.
Around 7.7 million employees already contribute to pensions through salary sacrifice, according to HMRC figures. More than 3.3 million pay in over £2,000 a year and are expected to be affected by the rule change.
The arrangement can also help workers reduce their taxable income, potentially avoiding higher-rate tax or reducing charges linked to Child Benefit.
However, the scheme is only available if an employer offers it, and workers are advised to check how it could affect benefits linked to salary, including maternity pay, sick pay and some mortgage applications.
With almost three years until the new restrictions take effect, experts say employees who have access to salary sacrifice should consider making full use of the tax break while they still can.
