Salary Sacrifice Pension Contributions Cap Imposed
The biggest news for employers in this week's budget was the changes to pension salary sacrifice.
The rumours around the changes for salary sacrifice pension contributions came to fruition in the Chancellor's budget speech (well, slightly before that courtesy of the OBR) with the planned imposition of a £2,000 cap on salary sacrifice contributions. Any pension contribution above that level would attract both employee and employer National Insurance contributions.
Employees at the auto-enrolment minimum threshold salary would not see much change, however, those employees actively saving for their retirement in this way will see a fall in their take-home pay. Employers will face higher payroll costs. It is also quite at odds with the Government's own pension policy for building reform to strengthen schemes, increase scale, and build more reliable posts. The Pension Schemes Bill, the value-for-money framework and the efforts of the Pension Commission all drive towards encouraging better outcomes and more confident saving. This cap is likely to pull the opposite way and see behavioural shifts in employees saving for their retirement and redesigning of salary sacrifice arrangements with employers.
The cap is planned to come into effect in 2029, so employers and employees have three years to consider what changes they need to make. A lot can happen in three years, but for now that's the plan.
Extended freeze on Income Tax and NI
There is also an extended freeze on income tax and national insurance thresholds for another three years until April 2031 – a year longer than expected. Estimates suggest that during this time roughly 750,000 people will become higher-rate taxpayers due to the freeze on thresholds. However, some support has been given to the retail and hospitality sector by way of lower business rates, which seeks to offset some of the pain caused by the increase in National Insurance in last year's budget.
A boost for skills funding
Skills funding for small and medium employers has also been given a boost with the announcement of free apprenticeship funding for workers under the age of 25. There will also be an £820 million investment in a scheme for young people who have been out of a job or education for 18 months to fund guaranteed paid work placements.
Updates to Employee Ownership Trusts
Disposals to Employee Ownership Trusts will have an immediate change to CGT relief, which will be reduced from 100 per cent to 50 per cent.
Confirmed increases to the National Minimum Wage
Changes to the National Minimum Wage were also confirmed on 25th November and will apply from April 2026. The hourly rate for over-21s will rise by 50p to £12.71, with workers aged 18-20 receiving an 85p rise to £10.85, and under-18s and apprentices getting £8 an hour – a 45p increase. The government estimates that 2.7 million employees and workers will benefit from the increases, which will take effect from April next year.
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