Pension savers using salary sacrifice schemes will face a new restriction on their contributions before incurring National Insurance charges. Rachel Reeves announced a £2,000 annual cap on pension savings through these schemes starting April 2029. Contributions exceeding this cap will be subject to National Insurance deductions.
This measure is expected to generate £4.7 billion for the Treasury. The Chancellor stated that contributions above the £2,000 cap will be taxed similarly to other employee pension contributions.
Currently, there is no limit on pension savings through salary sacrifice, but there is a £60,000 annual allowance for tax-free retirement contributions. Experts caution that capping these pensions could lead to reduced retirement savings for individuals or even the closure of pension schemes by some employers.
Steve Hitchiner from the Society of Pensions Professionals expressed concerns, highlighting the impact on employees’ take-home pay and overall pension savings. He emphasized that the restriction on salary sacrifice could diminish pension contributions and add a financial burden on employers.