The 2025 Budget: what it means for DC pensions

The Chancellor has now announced the Autumn Budget. 

After weeks of speculation about how the government might address the shortfall in public finances, we now know that pensions have not been spared. 

It has been announced that a restriction on National Insurance (NI) savings in the form of a £2,000 pa cap on salary-sacrificed employee pension contributions will come into effect from April 2029. A change that is forecast to raise nearly £5bn pa from the end of the decade, offset partially by potential responses by employers and employees. 

What does this mean for employers? 

Our research earlier this year showed that less than 10% of employers would be able to absorb the cost of a reduction in NI savings on pension contributions. Meaning this cost will likely shape employers’ workplace provisions in the future, with 43% saying they would review their reward strategies because of a change. 

In short, those who contribute the most will create the greatest cost for their employers. Our modelling suggests that for large employers (10,000+), with employees on high salaries and strong pension provision, employment costs could increase by over £8m pa. 

Employees who contribute more than the cap will also feel the impact of this change in their take-home pay. A £75k pa earner contributing at 10% pa would see their pay fall by broadly £110 a year. Meanwhile, a £50k pa earner contributing at 10% pa would see £240 less in their annual pay packet. 

Beyond salary sacrifice, we expect that bonus sacrifice will also be more challenging from 2029. It could be expected that such offers would cost employers 15% more than they do today. 

Practically, developments will need to be made to payroll solutions, and HMRC will engage with stakeholders in the coming months before publishing guidance. We are concerned that this will add further complexity to a system where errors are already frequently made. Employers will need to take a close look at adjustments made to avoid incorrect tax and NI treatment. Watch our short video to learn more.  

What can you do? 

• Supporting your employees at this time is fundamental. While the news circulates, misinformation and misunderstandings are likely. When it comes to pensions, contributing remains a good choice. Employees should be reminded of this and educated on what will be largely immaterial impacts on them in three years. 
• Get ahead of the changes. We can support with modelling to show how these changes may impact your organisation and your people. This will help you to make well-informed decisions when considering how to review your reward plans in future years.

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This communication has been compiled by Hymans Robertson LLP® (HR) as a general information summary and is based on its understanding of events as at the date of publication, which may be subject to change. It is not to be relied upon for investment or financial decisions and is not a substitute for professional advice (including for legal, investment or tax advice) on specific circumstances. HR accepts no liability for errors or omissions or reliance on any statement or opinion. Where we have relied upon data provided by third parties, reasonable care has been taken to assess its accuracy however we provide no guarantee and accept no liability in respect of any errors made by any third party.