2029 will see the introduction of a salary sacrifice cap of £2,000

74% of basic rate taxpayers who presently use salary sacrifice will not be impacted by the change, according to the government

The amount that employees and their employers can contribute to pensions through salary sacrifice before being subject to National Insurance (NI) will be capped at £2,000 annually, according to the government.

The new cap will take effect in 2029, according to Chancellor Rachel Reeves' second budget speech in the House of Commons.

For amounts over 2,000, employee and employer NICs will be billed as usual. According to budget documents, the 2,000 cap will affect only 26% of basic rate taxpayers and their employers who currently use salary sacrifice.

However, the government projects that between 201617 and 203031, the cost of salary sacrifice into pension plans will nearly triple, from 2.8 billion to 8 billion.

According to reports, the Treasury could save up to £2 billion annually by limiting NI relief on salary sacrifice to the first 2,000.

Employees' take-home pay would be reduced if they wanted to contribute more to their workplace pensions.

The cap may have the biggest impact on employers, according to Jamie Jenkins, director of policy at Royal London, a pension and investment firm.

"Where the savings on NI were being used for other purposes, the bigger story might be the effective rise in employer costs," Jenkins stated.

He did, however, add that restricting NI relief on salary sacrifice contributions was "perhaps the least worst outcome for pensions" and that the 25% tax-free pension lump sum remained unaltered.

The cap might do "more harm than good," according to Rebecca Williams, a wealth and investment manager at Rathbones.

It would undermine efforts to close the retirement savings gap, remove a significant incentive for employers to increase pension contributions, and add to the already burdened businesses' expenses. A "

Has anything else been revealed?

Other significant pension and retirement-related announcements were tucked away in the Treasury's budget documents.

There will be no more class 2 voluntary insurance contributions for foreign nationals.

Beginning on April 6, 2026, foreign nationals will no longer be able to supplement their state pension with class 2 voluntary insurance contributions (VNIC).

Additionally, it will increase the initial residency or contribution requirement for paying VNICs outside of the UK from three years to ten years.

"The government is closing loopholes in current voluntary national insurance contributions (VNICs) rules that allow those with limited connection to the UK to build UK state pension entitlement at a cheaper rate while overseas," according to budget documents. The "

A broader review of VNICS will also be initiated by ministers, with a request for evidence to be released by 2026.

Pensions from the state will increase.

According to Rachel Reeves, the government will use the triple lock system to raise the state pension for millions of retirees by 4.8% starting in April of next year.

Due to the increase, weekly payments for those receiving a full new state pension will increase from 230 point 25 to 241 point 30 starting in the spring.

The weekly amount of the full basic state pension will rise from 176 point 45 to 184 point 91.

State pensioners are protected from income tax.

Those receiving the full new state pension alone are anticipated to begin paying income tax within two years due to the rising state pension and frozen personal allowance (12,570).

However, according to budget documents, people who receive all of their income from the state pension and exceed their personal allowance will not be subject to "small amounts" of tax starting in 2027 - 2028.

Although more information about how this will be implemented is not yet available, it will be outlined "next year."

Defined-benefit pension plans that give members surpluses.

If certain scheme regulations and trustees permit it, the government will permit DB pension plans to distribute surplus funds to members starting in April 2027.

Earlier this year, the government reported that most DB schemes are currently operating at a surplus, which means that their assets are worth more than what members were promised.

Study Up on Rachel Reeves.