Rachel Reeves has confirmed that tax-free salary sacrifice pension contributions will be capped at £2,000 by the end of the decade.
UK pension shake-up could make millions on modest incomes worse off
A pension tax overhaul from the Labour Party government could see people on modest incomes lose out, it has been warned. Labour Party Chancellor Rachel Reeves has confirmed that tax-free salary sacrifice pension contributions will be capped at £2,000 by the end of the decade.
Labour plans to curb salary sacrifice pension arrangements, with former Liberal Democrats Pensions Minister Sir Steve Webb warning the impact could extend far beyond the 3.3 million savers initially identified as affected.
Mr Webb says a new Office for Budget Responsibility (OBR) document “indicated that many workers sacrificing less than £2,000 could also lose out”.
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The OBR document acknowledged that predicting how businesses will react remains “highly uncertain, given the various channels through which employers and employees can respond”.
Mr Webb stated: “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.”
He added: “We urgently need the Government to be clear about the true scale of the losses from this policy.”
Steve Hitchiner, the chair of the Society of Pension Professionals Tax Group, shared: “The decision to restrict salary sacrifice for pensions will result in higher costs to employees and employers, along with less saving in pensions when more saving is needed.
“The additional revenue raised by the Exchequer will both diminish and is uncertain.
“Nevertheless, employers and employees should continue to use salary sacrifice where possible and pension saving remains the most effective means of saving for later life.”
HMRC has said an estimated 7.7 million employees use salary sacrifice to make pension contributions – and of these, 3.3 million sacrifice more than £2,000 of salary or bonuses.
The Chancellor’s changes to the salary sacrifice pension regime will come into effect from April 2029.