Pension savers participating in salary sacrifice schemes for their retirement funds will face a new limit on their contributions before incurring National Insurance charges. The recent Budget announcement by Rachel Reeves introduces a £2,000 annual cap on pension savings through salary sacrifice schemes starting April 2029. Contributions exceeding this cap will be subject to National Insurance deductions.
This initiative is expected to generate £4.7 billion for the Treasury. The Chancellor emphasized the introduction of a £2,000 cap, stating that contributions above this threshold will be taxed similarly to other employee pension contributions.
Salary sacrifice involves reducing your pre-tax salary for non-cash benefits like pension contributions, resulting in lower tax payments and reduced National Insurance contributions for both employees and employers. While there is currently no specific limit on pension savings via salary sacrifice, there is an annual overall allowance of £60,000 before tax implications.
Experts caution that capping pension contributions through salary sacrifice could lead to reduced retirement funds for savers or potential closure of such schemes by employers. Steve Hitchiner from the Society of Pensions Professionals highlighted concerns about the impact on employees’ take-home pay and overall pension savings due to this restriction.
Please note that we and our partners may collect data through cookies and other means to enhance user experience, analyze site usage, and provide personalized advertising. You can manage your data preferences by adjusting settings on our website. Your continued use of our services indicates your consent to our cookie usage, as outlined in our Privacy Notice and Terms and Conditions.