From April 2026, the government will impose employer National Insurance Contributions on pension salary sacrifice arrangements – a 15 % levy on the amount sacrificed. This change reverses the long-standing tax advantage that allowed employees to reduce taxable income and employers to save NI, making pension saving more attractive for both sides.
For a small business with 10 employees sacrificing £5,000 each into pensions annually, the new NI charge adds £7,500 a year to the payroll bill – money that would otherwise go toward staff retention, equipment, or simply staying competitive. The British Chambers of Commerce Q4 2025 Quarterly Economic Survey shows that 62 % of SMEs already view pension costs as a major concern, with 41 % saying they have delayed or reduced contributions because of rising burdens. The new charge will push many to abandon salary sacrifice entirely, leaving staff with higher tax bills and weaker retirement savings.
Large employers can absorb the hit through bulk schemes or by passing costs on. Small firms – especially in hospitality, retail, and trades – operate on margins of 3–8 %. They cannot.
The solution is straightforward and fair:
- Exempt businesses with fewer than 50 employees from employer NI on salary sacrifice pension contributions until 2030.
- Maintain the full tax and NI relief for employees.
- Require employers to confirm the exemption via a simple PAYE flag (no new forms).
- Estimated cost to the Treasury: £180 million a year – less than 0.2 % of the £90 billion corporation tax take and fully offset by higher employee retention, lower staff turnover, and stronger pension participation among SME workers (OBR modelling of similar reliefs).
This is not a new loophole; it is restoring the status quo that existed successfully for decades. Salary sacrifice has been one of the most effective ways to encourage pension saving among lower-paid workers – precisely the people SMEs employ. Removing the NI charge for small firms keeps the incentive alive without creating unfair advantages.
Do not let a stealth tax discourage small businesses from helping their staff build a secure retirement. Give SMEs the exemption they need to continue offering this valuable benefit.
The 1832 Club is fighting for these changes. The more members we have, the louder our voice in Westminster.
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