A significant shift in pension saving regulations may lead employers to scrap popular workplace schemes, new research suggests. Starting in April 2029, a new £2,000 yearly cap will limit how much employees can save into their pensions through salary sacrifice arrangements.
What Is Salary Sacrifice?
Salary sacrifice allows workers to exchange part of their pre-tax salary for non-cash benefits, such as pension contributions. By reducing gross salary before tax and National Insurance deductions, employees pay less tax, and employers also save on National Insurance contributions.
Employer Responses to the Cap
According to a study by the Standard Life Centre for the Future of Retirement, two in five (39%) business leaders currently offering salary or bonus sacrifice schemes indicate they are less likely to continue providing them. One in ten (11%) have already decided to withdraw the scheme entirely.
Small business leaders (10–49 employees) are most affected, with half (49%) stating the cap would make them less likely to offer the scheme. Currently, 65% of employers offer salary or bonus sacrifice, and 32% offer both.
Political Context and Expert Warnings
The House of Commons recently rejected a House of Lords amendment to raise the cap to £5,000. Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, warned: “The UK has a widespread under-saving problem. Current minimum workplace pension auto-enrolment levels are insufficient, with 15 million people heading for financial insecurity in retirement. The cap on salary sacrifice schemes will worsen this crisis by creating additional cost barriers that disincentivise employers from offering the scheme, with significant implications for employees’ ability to save.”
Current Rules and Future Impact
Presently, there is no cap on salary sacrifice contributions, though most savers have an annual allowance of £60,000 for total pension contributions before tax charges apply. This allowance may be lower for high earners or those who have flexibly accessed their pension. The new cap, effective from April 2029, could reduce retirement savings for millions of workers.
