Restrictions on salary sacrifice which come into force in 2029 could lead to almost three million workers reducing or ending extra contributions to their retirement pot, according to research by consultancy Lane Clark & Peacock.
The government policy would apply a £2,000 cap to the amount of employee pension contribution which can be paid through ‘salary sacrifice’ whilst avoiding employee and employer National Insurance contributions.
The information was received from government through a series of Freedom of Information requests sent by LCP partner and former pensions minister Steve Webb.
Most of those who would be projected to be reducing salary sacrifice would be earning above the ‘upper earnings limit (currently £50,270 per year) and therefore higher rate taxpayers, however more than 600,000 would be basic rate taxpayers. The Office for Budget Responsibility has previously estimated that it is lower earners who will reduce their contributions by the most due to the changes.
Webb says: “The Government has presented the changes to salary sacrifice for pensions as being a relatively painless way of cracking down on a tax break mostly enjoyed by the well off. But these figures show that the effects of the policy will be far more damaging than had previously been admitted.
“At a time when the government is running a major Commission to tackle the issue of pension under-saving, it is shocking that a separate government policy will result in over 2.8 million workers cutting back on pension saving.”
This recent interim report from the pensions commission identified significant issues around undersaving for retirement, particularly among lower-earners, women and the self-employed.