Millions of savers are currently benefitting from salary sacrifice to boost their pensions and monthly take home, but a new survey from Pensions UK shows that many do not fully understand how it works or what they stand to lose when the rules change in April 2029.
While salary sacrifice is widely used for pension contributions, awareness of the upcoming changes is low and confusion could be widespread. This knowledge gap means savers are at risk of missing out on valuable benefits, without realising it.
Two in five people paying into a DC pension say they use salary sacrifice, with most using it for pension contributions, at 28%. Usage is higher among men (32%) than women (23%), and higher among those earning more than £48,000 (37%) compared with 16% among those earning less than £14,000.
Fewer than half of respondents (41%) were aware of any salary sacrifice changes in the Budget, however this rises among salary sacrifice users (63%). Among users, men are more likely to be aware (70%) than women (51%).
When asked about the likely impacts of these reforms, among those currently using salary sacrifice for pension contributions, 62% expect to pay more National Insurance, 50% expect to pay more tax, 51% believe employers will pay more National Insurance and 46% believe less money will go into their pension.
Behavioural responses to the 2029 changes show resilience as well as risk. Two in five say they do not expect to change contributions (43%), while 28% say they are likely to increase contributions before the change comes into effect. Few plan to reduce before the change (3%), while 11% expect to reduce when the change takes effect and 14% are uncertain.
More than two in five (43%) say they will use other savings vehicles, with stocks and shares ISAs at 58%, cash savings such as savings accounts, fixed term bonds, and premium bonds at 47%, and cash ISAs at 46%, alongside paying off mortgages or debts earlier at 25% and using a Lifetime ISA at 23%.
Matthew Blakstad, deputy director of strategic policy and research at Pensions UK, said: "This research should be a wakeup call for government. Salary sacrifice works. It helps people save more for the retirement they want while maintaining take home pay. Instead of dismantling a system that supports savers and employers, government should consider the knock-on impact these changes will have. The reforms will affect take home pay and pension pots, but many savers do not even know they are coming.
“The knowledge gap is stark. Confusion about the changes is widespread and risks undermining positive saving behaviours and confidence in the UK pension system. Rather than rewarding those who are doing the right thing, these reforms threaten to throw up new hurdles for people who are trying to secure their own futures. Employees are also acutely aware of the impact these changes will have on their employers. When these changes come in, employers will have fewer incentives to increase their contributions above the minimum, which can only mean smaller pension pots at retirement.
“Pensions are already overcomplicated, and savers need simple, straightforward products, not hurdles. Stability and clarity are essential to protect long-term saving and maintain trust. Savers and employers need to see consistent policies that incentivise long-term savings, to give them the certainty they need to keep contributing, plan effectively, and support economic growth."
