UK households with savings are being urged to take three specific financial actions to mitigate the impact of new rules announced by Chancellor Rachel Reeves in the recent Autumn Budget. The changes target pension salary sacrifice arrangements, potentially leaving some savers hundreds of pounds worse off annually.
The Impact of the New Salary Sacrifice Limit
Financial expert Antonia Medlicott, Founder and Managing Director of Investing Insiders, has highlighted the concrete effects of the Chancellor's move. She explains that for an individual earning the average UK salary of £39,039, sacrificing £200 per month into a pension will now see only £166.67 of that amount free from income tax and National Insurance. Previously, the full £200 was tax-free.
"Which, at the end of the year, will leave you £112 worse off," Ms Medlicott stated. She further clarified that for every £100 over the £166.67 monthly limit, an individual will pay an extra £336 in income tax and National Insurance annually on that £1,200.
Three Key Strategies to Protect Your Savings
To combat this financial hit, savers are advised to focus on three primary avenues: maximising ISA usage, negotiating higher employer pension contributions, and considering a Self-Invested Personal Pension (SIPP).
1. Maximise Your ISA Allowance
With an estimated 53% of Brits currently without an ISA, there is a significant opportunity for many. Ms Medlicott points out that interest earned within an ISA is entirely tax-free, unlike in a regular savings account where a basic rate taxpayer could face a minimum 20% tax after using their Personal Savings Allowance.
"For example, if you maximise your Cash ISA to £20,000 each year and earn 5% interest, you will earn £1,000 tax-free," she said. "But that same money, with the same interest rate in a regular savings account, would be subject to a £200 tax for a basic rate taxpayer." For this group, using an ISA can leave them £120 better off annually, more than offsetting the £112 lost from the pension change.
She also highlighted the potential of Stocks and Shares ISAs, which carry more risk but offer higher growth potential. While the average one-year fixed Cash ISA rate is around 3.89%, investment growth in Stocks and Shares ISAs averaged 11.66% from February 2024 to February 2025.
2. Negotiate Higher Employer Pension Contributions
Since the new £2,000 annual limit on tax-free salary sacrifice applies to employee contributions, employer payments are not affected in the same way. This presents a key negotiation point.
"You could negotiate with your workplace to see if they would increase their contribution to your pension pot," advised Ms Medlicott. "Employer contributions avoid tax and National Insurance entirely... Also, explain that this will cost them less than a pay rise and may improve staff retention." She suggested using HR surveys or collective action with colleagues to raise the issue.
3. Consider a Self-Invested Personal Pension (SIPP)
For those concerned about meeting retirement goals, a SIPP offers greater control over investments. Crucially, they also come with valuable government top-ups. "For basic rate taxpayers, for every £100 you put in, the government will contribute £25," Ms Medlicott explained. This means a monthly contribution of £100 into a SIPP yields an extra £300 each year from the taxman.
All investment growth inside a SIPP is tax-free, and from age 55 (rising to 57 from 2028), you can take 25% of your pension pot tax-free. This approach can not only help reach pension targets but potentially accelerate the path to retirement.
Proactive Planning is Essential
The Autumn Budget's shift in policy underscores the importance of proactive financial management. By reviewing their strategy and considering these three moves—leveraging ISAs, seeking enhanced employer contributions, and exploring SIPPs—UK savers can effectively navigate the new landscape and protect their long-term financial health from the latest governmental changes.
