Chancellor Rachel Reeves is set to announce a significant change to the rules governing pension contributions in the UK, directly impacting how millions of workers save for their retirement.
What is Changing with Pension Salary Sacrifice?
According to a leak from the Office for Budget Responsibility (OBR), the government will introduce a new limit on the amount of money employees can pay into their private pensions through salary sacrifice schemes before it becomes subject to tax.
The new policy will set a £2,000 cap on tax-free contributions made via these arrangements. Any pension contributions that exceed this £2,000 annual limit will no longer be exempt from National Insurance contributions.
Timeline and Financial Impact of the Policy
This major shift in pension policy is not imminent. The change is scheduled to take effect from April 2029, giving savers and employers several years to prepare for the new financial landscape.
The measure is projected to have a substantial impact on the Treasury's finances. It is estimated to raise £4.7 billion in the 2029/30 financial year, followed by a further £2.6 billion in 2030/31.
Budget Context and Accidental Leak
The news broke ahead of the official Autumn Statement after the OBR accidentally published its full economic and fiscal outlook document prematurely. This early release provided a glimpse into Chancellor Reeves' plans, which she has characterised as a 'fair and credible' budget for working people.
The formal announcement will be made as part of the government's broader fiscal strategy, signalling a new approach to pension tax relief and workplace saving incentives in the years to come.
