Millions more workers could be indirectly affected by changes to the salary sacrifice scheme announced in the November budget, a former pensions minister has warned.
Chancellor Rachel Reeves announced that from April 2029 only the first £2,000 of pension contributions made through salary sacrifice will be exempt from National Insurance.
Contributions above £2,000 will, from that date, be subject to employer and employee National Insurance.
HMRC estimates that 7.7 million employees use salary sacrifice to make pension contributions – 3.3 million of whom sacrifice more than £2,000.
But Steve Webb, a former pensions minister and a partner at LCP, says the number of people affected could far exceed 3.3 million.
He pointed to recent OBR analysis which highlights the “highly uncertain” way that employers could respond.
Webb told the Money blog that to deal with the costs, employers may take whole-workplace approaches which affect even those who aren’t paying more than the threshold.
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Or, the OBR document said, “employers could increase contributions in place of wage growth or lowering contractual salary”.
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Webb told the Money blog: “This change is a multi-billion pound hit on employers who will not take it lying down.
“They will response by squeezing wages, cutting back on pensions or giving up on salary sacrifice altogether. In all these cases, the impact will not be restricted to the 3.3 million people who sacrifice more than £2,000 per year – as claimed by the government – but could spread to millions more employees in those workplaces who could all suffer.
“Many of these will be people on modest incomes who the government claims to be protecting.”
In a statement, a spokesperson for the Treasury told Money: “This isn’t new information – the costing note published at budget included the behavioural impacts of the measure.
“Our reforms protect 95% of workers earning under £30,000 who use salary sacrifice, while tackling costs that were set to treble to £8bn as high‑earners piled in bonuses tax‑free.”
