The government has released an impact assessment of the Budget 2025 measure which will impose National Insurance Contributions on sacrificed salary used for pensions in excess of £2,000 per year from 2029.
According to the assessment, around 7.7m workers currently benefit from salary sacrifice for pensions, and of these, 3.3m (around 42%) sacrifice more than the £2,000 limit.
In the Budget red book, the government had previously said that amongst basic rate taxpayers, around 26% would lose out.
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, former pensions minister and 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.”
Nicholas Nesbitt, private client partner at Forvis Mazars, commented: “Come 2029, this will disproportionately hit those earning under £50,270, as they will be paying 8% NICs where they are aiming to save well for their future. However, higher earners with incomes over £50,270 would see just a 2% NIC cost on their contributions.
“Many employers pass on NIC savings as further pension contributions for their employees and removing these reliefs could cut employees’ pension savings further.
“That said, a lot can change in four years, and while workers should plan for the changes, the landscape may be different by April 2029.”
