4.7bn 'salary sacrifice raid' could see pension benefit scrapped by thousands of employers, experts warn

"Experts are warning that Rachel Reeves' decision to cap the National Insurance advantages of pension salary sacrifice at £2,000 a year risks dismantling one of the UK's most widely used workplace savings tools, and may force smaller employers to freeze hiring or scale back staff benefits. The Treasury expects the change to raise £4.7 billion in 2029/30, rising from workers and employers who currently benefit from unlimited NI relief when pension contributions are made via salary sacrifice."

"Salary sacrifice has been a legitimate and effective way to boost retirement savings while helping employers reward staff tax-efficiently," he said. "For many scale-ups and start-ups that cannot compete on headline salaries, enhanced pension contributions form a crucial part of how they attract and retain talent. " The £2,000 cap reduces the tax efficiency so significantly that many businesses may scrap the schemes entirely. Combined with higher employer NI from last year, this places pressure on margins and curbs their ability to recruit competitively."

Rachel Reeves' plan caps National Insurance advantages for pension salary sacrifice at £2,000 a year, removing unlimited NI relief for contributions made via salary sacrifice. The Treasury projects a £4.7bn revenue gain in 2029/30 as a result. Chartered financial planners, accountants and HR specialists warn of effects on retirement savings, recruitment and business investment. Fast-growing scale-ups and start-ups often use enhanced pension contributions to attract and retain staff, and reduced tax efficiency could prompt firms to scrap schemes. Smaller employers face additional cost pressures amid rising wages, business rates and energy bills, risking hiring freezes or cut benefits.

Read at Business Matters