Rachel Reeves' planned salary sacrifice changes could be “far more damaging than previously admitted,” experts warn, putting millions at risk. The Labour Party Chancellor is set to introduce new restrictions from April 2029, limiting the National Insurance Contributions (NICs) exemption on salary sacrifice pension contributions to the first £2,000 per year.
Impact on Workers
More than 2.8 million workers are projected to scale back their pension contributions once the new rules come into force. Sir Steve Webb, former Liberal Democrats pensions minister, criticized the move, stating: “The Government has presented the changes to salary sacrifice for pensions as being a relatively painless way of cracking down on a tax break mostly enjoyed by the well off. But these figures show that the effects of the policy will be far more damaging than had previously been admitted. It is hardly 'joined-up government' to be stressing the need for more pension saving one day and then implementing a policy that will reduce the pension savings of millions the next.”
Details of the Change
From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to usual limits). Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements, but employee contributions above this amount will be subject to employer and employee NICs, similar to other workplace pension contributions.
Employers will need to report the total amount sacrificed through existing payroll software, and HMRC will engage with stakeholders and publish further guidance. All employer pension contributions will continue to be free of NICs.
Government Defense
A Treasury spokesperson defended the reforms, 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, and as IFS analysis shows, over three quarters of under 30s will be unaffected.”
