Experts are warning that Rachel Reeves’ decision to cap the National Insurance advantages of pension salary sacrifice at £2,000 a year risks dismantling one of the UK’s most widely used workplace savings tools, and may force smaller employers to freeze hiring or scale back staff benefits.
The Treasury expects the change to raise £4.7 billion in 2029/30, rising from workers and employers who currently benefit from unlimited NI relief when pension contributions are made via salary sacrifice. But financial planners, accountants and HR specialists say the policy could have far-reaching consequences for retirement savings, recruitment and business investment.
Anita Wright, chartered financial planner at Ribble Wealth Management, described the move as a clear revenue-raising measure dressed up as reform.
“The so-called ‘pension salary sacrifice raid’ limits NI advantages workers and employers have legitimately enjoyed for years,” she said. “A £4.7bn yield tells you how widely relied upon the system is.”
Simon Thomas, managing director at Ridgefield Consulting, said the cap undermines a tool that has been particularly valuable for fast-growing companies.
“Salary sacrifice has been a legitimate and effective way to boost retirement savings while helping employers reward staff tax-efficiently,” he said. “For many scale-ups and start-ups that cannot compete on headline salaries, enhanced pension contributions form a crucial part of how they attract and retain talent.
“The £2,000 cap reduces the tax efficiency so significantly that many businesses may scrap the schemes entirely. Combined with higher employer NI from last year, this places pressure on margins and curbs their ability to recruit competitively.”
Smaller employers say the change adds yet another cost at a time of rising wages, business rates and energy bills.
Kate Underwood, founder of Kate Underwood HR & Training, said the move will stall recruitment: “Salary sacrifice was one of the only ways to keep the numbers vaguely sensible. Now employers will pay more NI on anything above the cap. Most small businesses won’t start sacking people because of this alone — but they will slow hiring, delay replacing leavers and cut perks.
It makes attracting experienced candidates harder because you’ve just lost one of the few tools available to build a competitive package.”
Consumers saving for retirement also face higher costs.
Philly Ponniah, chartered wealth manager at Philly Financial, said many workers depend on sacrifice to manage their finances.
“Capping sacrifice at £2,000 is a big shift. It’s raising billions precisely because so many rely on the system. Removing relief after that point means higher NI for workers and employers — effectively a cut to take-home pay at a time when budgets are already stretched.
It won’t stop pension saving, but it makes it more expensive, especially for middle earners. Long-term, it weakens one of the few tools that supports consistent saving.”
David Stirling, independent financial adviser at Mint Wealth in Belfast, warned that the long-term impact on pension pots could be severe.
“This may look clever on paper to the Chancellor, but in practice higher earners lose the biggest perk of pension planning, employers may scale back contributions, and long-term pots could shrink by tens of thousands.
All in the name of ‘fairness’, savers now face a bureaucratic minefield while the Treasury pockets billions in extra NI.”
Across the board, experts agree the policy represents not just a tax rise, but a structural shift — one that risks depressing savings rates, increasing workforce stagnation and piling further financial pressure on businesses already grappling with rising costs and weak demand.