Budget changes to pension salary sacrifice, expected to raise £4.8bn, could affect far more workers than the 3.3 million previously identified.
From 2029/30, any employee pension contributions over £2,000 made via salary sacrifice will be subject to employer and employee National Insurance contributions.
Government analysis suggested that only the 3.3 million employees contributing more than £2,000 would be affected, with the remaining 4.3 million considered “protected.” But the OBR warns that many of these lower contributors could also lose out due to likely employer responses to the tax changes.
Employers may respond in ways that reduce take-home pay or pension benefits across the workforce, such as switching employees to standard contributions, moving them to relief-at-source schemes, or passing higher costs onto staff through lower wages or contributions.
The OBR says the Budget’s tax changes could affect a far larger group than previously thought, including many workers the Government had assumed were “protected.”
LCP partner at pension consultants Steve Webb says: “The Budget change to salary sacrifice rules around pensions was a huge measure which will cause employers to rethink their pay and pensions policies. The independent OBR shows very clearly that there are a range of ways in which employers will respond which will affect the wider workforce and not just those contributing over £2,000 via salary sacrifice.
“Far from ordinary workers being ‘protected’ from the changes, we could see millions of people on modest incomes losing out as well, further undermining their incentive to save in a pension. We urgently need the Government to be clear about the true scale of the losses from this policy and not continue to suggest that ordinary workers will not be affected”.