Pension savers utilizing salary sacrifice schemes for retirement planning will soon face a cap on their contributions before incurring National Insurance charges. Rachel Reeves announced a new £2,000 annual limit on pension savings through salary sacrifice schemes in the latest Budget.
Effective from April 2029, contributions exceeding the £2,000 yearly threshold to pension schemes via salary sacrifice will be subject to National Insurance. The introduction of this cap is estimated to generate £4.7 billion for the Treasury.
The Chancellor emphasized that contributions above the £2,000 cap will be taxed similar to other employee pension savings. Currently, there is no restriction on pension savings through salary sacrifice, although an annual allowance of £60,000 exists for tax-free retirement contributions.
Experts caution that limiting salary sacrifice for pensions could lead to reduced retirement savings for individuals or even closure of pension schemes by employers. Steve Hitchiner from the Society of Pensions Professionals highlighted that this restriction may impact the take-home pay of numerous employees, particularly basic rate taxpayers, and could deter pension savings.
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