Rachel Reeves’ Budget introduces a £2,000 annual cap on salary sacrifice pension contributions from April 2029, with amounts above this losing National Insurance exemption
Pension savers utilising salary sacrifice schemes to contribute towards their retirement fund will face a cap on the amount they can pay in before incurring National Insurance charges.
Rachel Reeves is set to use her Budget to announce a new annual cap of £2,000 on the amount that can be saved into your pension through salary sacrifice schemes, as per documents recently released by the Office for Budget Responsibility (OBR).
The OBR has stated that this new cap will be implemented from April 2029. This means that any pension contributions from salary sacrifice schemes exceeding the annual £2,000 threshold will no longer be exempt from National Insurance. The introduction of this cap is projected to generate £4.7 billion for the Treasury.
Salary sacrifice involves agreeing to forfeit a portion of your pre-tax salary in exchange for a non-cash benefit, such as payments into a pension scheme.
As you’re exchanging part of your salary prior to tax and National Insurance contributions (NICs) being calculated, this reduces your gross salary, resulting in overall lower tax payments. Consequently, your employer also pays less National Insurance.
Currently, there is no limit on the amount you can save into your pension through salary sacrifice, although there is an overall annual allowance of £60,000 for how much you can contribute to your retirement pot before tax is applied.
Specialists have cautioned that imposing a cap on salary sacrifice pensions could potentially result in savers having less money in their retirement funds, or some employers shutting down their schemes entirely.
It comes as chaos reigned when Reeves’ budget was leaked just before she was set to deliver it. The Chancellor was seen being handed a phone moments after the ‘leak’ as she was about to make her speech.
The Office for Budget Responsibility (OBR) has seemingly released its economic and fiscal document before Reeves’s announcement at 12:30pm.
This included the two-child benefit cap being removed at an estimated cost of £3 billion by 2029-30, according to the Office for Budget Responsibility.
The OBR has now apologised and launched an investigation after its economic and fiscal outlook document was published early in a “technical error”.
They said in a statement: “A link to our economic and fiscal outlook document went live on our website too early this morning. It has been removed.
“We apologise for this technical error and have initiated an investigation into how this happened.
“We will be reporting to our oversight board, the Treasury, and the Commons Treasury Committee on how this happened, and we will make sure this does not happen again.
“Our economic and fiscal outlook and supporting documents will be released when the Chancellor has finished her speech.”
The OBR documents also showed it has increased its forecast for economic growth this year from 1% to 1.5% but downgraded its forecasts for the following four years.
Reeves’ Budget will see the existing freezes to personal tax thresholds extended for another three years until 2030-31.
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