Millions will reduce their pension contributions as a result of salary sacrifice changes

The government itself estimates that plans to limit salary sacrifice on pension contributions will result in lower levels of saving

The government's own data indicates that nearly three million people may reduce their pension savings due to the upcoming salary sacrifice clampdown.

In her 2025 Autumn Budget, Chancellor Rachel Reeves announced a cap of £2,000 on the amount that employees and their employers could contribute to pensions through salary sacrifice before being subject to National Insurance (NI) fees.

The adjustments are anticipated to raise £4.8 billion for the Treasury in 2029-2030 and £2.5 billion in 2030-2031. They will take effect in April 2029.

Although the country's finances might benefit from this, people's personal pension funds may suffer.

Watch the entire video here. According to research conducted by former pensions minister Steve Webb, who is currently a partner at consulting firm LCP, the government's own estimates indicate that over 2.8 million workers are anticipated to reduce their pension savings due to the changes.

This occurs in spite of a recent warning from the government-backed Pensions Commission that individuals are not saving enough for retirement.

The effect of changes in pension salary sacrifice.

Employee pension contributions have long been made through salary sacrifice.

An employee's net income is adjusted by adding funds from their gross pay into their pension fund. Additionally, this lowers the payroll taxes that both employers and employees must pay.

However, according to government guidelines, the cost of the relief has significantly increased, going from 2.8 billion in lost National Insurance contributions in the 2016-2017 tax year to 5.8 billion in the 2023-2024 tax year.

By 2030/2031, this is predicted to nearly triple to 8 billion if nothing changes.

The government will save money by capping the relief.

An estimated 7.7 million workers currently use salary sacrifice to contribute to their pensions, according to information previously released by HMRC.

Of these, 3.3 million forfeit more than £2,000 in bonuses or salaries.

As a result of the policy, the Office for Budget Responsibility has already issued a warning that contributions may decline.

Webb's Freedom of Information (FOI) request to HMRC has exposed the scope of this.

The FOI requested the government's estimate of the number of workers who are anticipated to reduce their contributions in 2029-2030.

Over 2.8 million workers are expected to lower their contributions, according to HMRC.

This is broken down as 2.2 million earning above the 50,270 upper earnings limit, while 666,000 will generally be basic rate taxpayers.

"The government has presented the changes to salary sacrifice for pensions as a relatively painless way of cracking down on a tax break mostly enjoyed by the wealthy," Webb stated.

However, these numbers indicate that the policy's consequences will be far more detrimental than previously acknowledged."

He contends that a government that emphasizes the need for increased pension savings through the Pensions Commission one day and then enacts a policy that will lower millions of people's pension savings the next is hardly cohesive.

"It is shocking that a separate government policy will result in more than 2.8 million workers cutting back on pension saving at a time when the government is running a major Commission to tackle the issue of pension under-saving," Webb continued."

"High earners piled in huge bonuses through salary sacrifice without paying a penny in taxes, a taxpayer-funded perk largely benefiting the better off," a Treasury spokesperson stated.

95% of workers making less than £30,000 are protected by our fair reforms through salary sacrifice, and according to IFS analysis, more than 75% of workers under 30 will remain unaffected."

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