The Government last night 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 (p5) , 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.
Commenting, Steve Webb, 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”
