Workers using salary sacrifice face a collective £468 million increase in National Insurance contributions (NICs) following the £2,000 annual cap introduced by former Chancellor Rachel Reeves, new figures show. The rules, confirmed to remain under Prime Minister Andy Burnham and Chancellor John Healey, take effect from April 2029.
Data released under a Freedom of Information (FOI) request on Wednesday reveals that 3.4 million workers will pay an average of £84 more per year in NICs. This forms part of a broader Treasury expectation to raise £4.8 billion in the 12 months after the cap is imposed.
Who is affected by the £2,000 cap?
HM Revenue & Customs (HMRC) states that of the 7.7 million people using salary sacrifice, 4.3 million will be protected because they contribute less than £2,000 annually to their workplace pension. The remaining 3.4 million, who contribute above this threshold, will see their pension payments become liable for NICs.
Sir Steve Webb, former Liberal Democrats pensions minister and partner at consultancy LCP, explained the wider impact: “Ultimately, companies are comprised of their suppliers, their employees and their owners. That £3bn is going to come from wages, prices or dividends.”
Experts warn of reduced pension potential
Gill Millen of Bowmore Wealth Group criticised the policy, stating: “This is an immediate income tax boost for the Treasury and then it’s a fingers-crossed moment, hoping that a lot of people might not get around to claiming what is theirs.” She added: “We are going to see a lot of ordinary workers actually reduce their future pension potential as a result of this policy.”
The Treasury defends the change, with a spokesman saying: “High earners piled in huge bonuses through salary sacrifice without paying a penny in tax – a taxpayer-funded perk largely benefitting the better off. Our fair reforms protect 95 per cent of workers earning under £30,000 using salary sacrifice.”
Impact on workers and Treasury revenue
The £468 million direct cost to workers comes from higher NICs deducted from payslips, while the Treasury expects to recoup millions more in total NIC revenue. The policy aims to close a loophole that allowed high earners to avoid tax on large pension contributions.
For the 3.4 million affected, the change means an immediate reduction in take-home pay, with long-term consequences for pension savings. The full financial impact will be felt from April 2029, with the Treasury projecting £4.8 billion in additional revenue in the first year alone.
