An estimated 3.3m people using salary sacrifice to boost their pensions are set to be hit by the Budget cap on the process, according to new government data.
The Government released an impact assessment of the Budget 2025 measure yesterday.
The data includes a review of the imposition of National Insurance Contributions on sacrificed salary used for pensions in excess of £2,000 per year from 2029. The move was announced by the Chancellor to save the Treasury money and recoup lost National Insurance contributions.
Former Pensions Minister and LCP consultancy partner Steve Webb has criticised the change and warns that hitting people at a time of chronic pension under-saving will “make matters worse.”
According to the government assessment, around 7.7m workers use salary sacrifice for pensions, approximately 1 in 5 of the workforce.
Of the 7.7m about 3.3m (around 42%) currently sacrifice more than the £2,000 limit.
Chancellor Rachel Reeves made the widely anticipated change in the Budget to save around £4.7bn.
The Budget Red Book (p5) had said that among basic rate taxpayers, around 26% would lose out, according to Sir Steve. But the number of losers could be greater than this if employers respond to the change by making pension provision less generous for all workers.
Steve Webb, partner at pension consultants LCP, said: “A Budget measure that was largely seen as complex and technical could have significant real-world implications for millions of workers. At a time when the nation as a whole has a significant ‘under-saving’ problem, this change will make matters worse.
“On the Government’s own estimates, around 3 in 7 of the workers who use salary sacrifice to pay into their pensions will be hit by the change, whilst employers will face a bigger hit because of their higher rate of National Insurance Contributions.
"Although employers have time between now and 2029 to consider their options, there is a risk that some will simply cut back on the generosity of their workplace pension offering, which would be a serious backward step”
The government is expected to publish further details of the salary sacrifice cap in due course.
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