Autumn Budget 2025: salary sacrifice and Teachers’ Pension Scheme

As announced in the 2025 Autumn Budget, the government is changing how salary sacrifice for pension contributions works. Specifically, from April 2029, the amount that’s exempt from National Insurance contributions will be capped at £2,000 a year for employee contributions made via salary sacrifice.

Since the announcement, we have received several queries from schools as to whether this change will impact hybrid “total pay and benefit” pension arrangements implemented in response to the rising cost of employer contributions under the Teachers’ Pension Scheme (“TPS”). This can mean different things to different people but, broadly, refers to a situation in which a school has introduced a defined contribution pension scheme to run alongside the TPS, with those in the TPS accepting a reduced salary to offset the cost of the school’s contributions above a capped rate.

In short, the announced change in respect of salary sacrifice for pension contributions will not impact such an arrangement, provided the terms have been carefully drafted and are sufficiently clear. This is because:

• The reduction in salary for those remaining in the TPS is not technically a salary sacrifice. Rather, it’s a contractual reduction in salary to offset the cost to the school of its TPS employer contributions, which must, in any event, be funded by the school above an agreed capped rate
• In any case, salary sacrifice for pension contributions is not available in the TPS.

The change will, however, impact salary sacrifice arrangements where these have been put in place in respect of a school’s alternative defined contribution pension scheme. Schools may wish to seek guidance from their pension provider in advance of the change coming into effect.

If you have a question about how your school will be impacted by these adjustments, our Education Employment team will be happy to help.