An estimated 3.3 million pension savers in the UK are set to face higher national insurance costs due to significant changes to salary sacrifice schemes announced in the recent Budget, according to new figures from HM Revenue and Customs (HMRC).
The Scale of the Change
Official guidance published by HMRC states that around 7.7 million employees currently use salary sacrifice arrangements to pay into their pensions. Of this total, the 3.3 million individuals who sacrifice more than £2,000 of their salary or bonuses each year will be directly affected by the reform.
The new rules, scheduled to take effect in April 2029, will remove the national insurance (NI) exemption for salary-sacrificed pension contributions above an annual threshold of £2,000. Contributions exceeding this limit will be treated as ordinary employee pension contributions within the tax system and will become subject to NI.
Industry Backlash and Wider Consequences
The move has drawn sharp criticism from pensions industry experts, who warn it undermines retirement planning at a time when many are already struggling to save enough. Yvonne Braun, Director of Policy for Long-Term Savings, Health and Protection at the Association of British Insurers (ABI), cautioned that rebuilding public trust in pension stability "will take years."
Former Pensions Minister Sir Steve Webb, now a partner at Lane Clark & Peacock, highlighted a potentially broader risk. He warned that the impacts could extend further if employers respond by making their overall workplace pension schemes less generous for all staff. "At a time when the nation as a whole has a significant 'under-saving' problem, this change will make matters worse," Sir Steve stated.
Operational Impact and Cost to the Treasury
The HMRC document outlines significant administrative burdens. An estimated 290,000 employers who operate these schemes will face one-off costs for updating software and training staff, plus ongoing costs for additional calculations and reporting.
HMRC itself will need to implement IT changes costing around £1.9 million. The Treasury's motivation for the change is clear: the cost of the salary sacrifice relief in forgone national insurance has ballooned from £2.8 billion in the 2016-17 tax year to £5.8 billion in 2023-24. Without intervention, it was projected to near £8 billion by 2030-31.
The data also shows that those using salary sacrifice for pensions are typically of working age, with 31 to 50-year-olds overrepresented. Men, who make up 59% of users, are also more likely to utilise these schemes compared to their share of the general adult population.
