Almost three million people in the UK could end up with a weaker retirement because of Rachel Reeves’ planned changes to salary sacrifice pensions, according to new government data.
Figures from HMRC, released through a Freedom of Information request by former pensions minister Sir Steve Webb, suggest about 2.9 million workers may cut back on pension contributions once the policy starts.
That clashes with Treasury claims that the reforms mainly hit higher earners.
HMRC also estimates around 666,000 affected workers are basic-rate taxpayers earning under £50,271 a year. In other words, roughly one in four people impacted are not high earners, despite claims that the policy is aimed at wealthier savers building large pension pots tax-free.
Under plans set out in the Autumn Budget, the government wants to introduce a £2,000 cap on pension contributions made through salary sacrifice before National Insurance is charged.
From 2029, anything above that limit would face National Insurance charges of 8% for basic-rate taxpayers and 2% for higher-rate earners.
Salary sacrifice schemes let workers swap part of their pay for employer pension contributions, which reduces both taxable income and National Insurance.
The Treasury says the change is a crackdown on a tax break it believes is mainly used by higher earners. Ministers expect it to raise around £4bn to £5bn.
Sir Steve, now at pension consultancy LCP, criticised the move, saying it would push millions to save less at a time when the government is already warning about widespread pension under-saving.
He also questioned whether the policy fits with wider pension strategy, arguing it sends mixed signals about encouraging retirement saving while also discouraging contributions.
The Office for Budget Responsibility estimates that employers will end up covering much of the cost, paying around £3bn of the £4.8bn expected to be raised in 2029–30 through higher National Insurance bills.
At present, firms save money when staff use salary sacrifice because contributions are taken before National Insurance is applied.
Separate analysis from the Institute for Fiscal Studies suggests around one million households could be about £900 worse off each year, with employers likely to offset costs through slower wage growth.
The findings come shortly after a major pensions review warned that around 15 million people in the UK are not saving enough for retirement, including many middle earners, women, and self-employed workers.
A Treasury spokesperson defended the reforms, saying high earners had been using salary sacrifice to receive large bonuses without paying tax, and that the system had become unfairly skewed.
They added that 95% of workers earning under £30,000 would be protected, and that most under-30s would not be affected.
