Robert Holland, Head of Employment Law, Aberdein Considine, said: “This change to pension salary sacrifice schemes represents a significant shift in how these arrangements are treated and will materially affect how employers structure pension benefits over the next few years.

“For many organisations, salary sacrifice has been a tax-efficient way to enhance employees’ retirement savings while reducing National Insurance costs. The proposed changes remove much of that efficiency, particularly for higher earners and senior staff.

“From a legal perspective, employers need to proceed carefully. Salary sacrifice arrangements are contractual in nature, meaning any changes to pension contributions or remuneration structures will likely require consultation and, in some cases, employee consent. We expect to see a rise in employers reviewing employment contracts, benefit policies and remuneration frameworks as they seek to manage increased costs.

“There is also a potential employee relations risk. Altering established pension arrangements can impact morale, retention and trust, especially if changes are perceived as a reduction in overall reward. Employers will need to balance commercial realities with transparent communication and fair process.

“The key message is preparation. While implementation is scheduled for 2029, employers should start planning now by reviewing pension schemes and considering whether alternative reward structures might offer better long-term value.”