Reeves confirms big pension change for the UK
Chancellor Rachel Reeves has announced that salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from national insurance contributions from April 2029.
Salary sacrifice for pensions is a popular scheme for employers that shrinks taxable pay on which businesses pay national insurance contributions by shifting it into pension pots.
The change means that salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system.
Data from the Office for Budget Responsibility shows that the policy will result in an increase in National Insurance Contributions (NICs), which is estimated to raise £4.7 billion in 2029-30 and £2.6 billion in 2030-31.
This estimate assumes that most employee pension contributions above £2,000 that were made through salary sacrifice will now face both employer and employee NICs – either because they switch to a regular pension scheme or remain in a salary-sacrifice scheme under the new tax rules.
“Restricting salary sacrifice from April 2029 isn’t an explicit tax rise, but many employees will either see less in their pay packets or in their pension pots,” said Rob Morgan, Chief Analyst at Charles Stanley Direct.
“It might seem abstract, but the long-term effects on the nation’s retirement pots could be considerable,” he said.
Concerns over retirement
The data, based on a survey of 5,000 UK retirees, reveals that more than half are worried about maintaining their standard of living over the next year, with rising costs and inflation eroding their spending power.
Notably, 72% of higher-income retirees also expressed concern about their financial future, showing that money worries are not confined to those on lower incomes.
These findings echo broader trends. A 2021 poll by the Money and Mental Health Policy Institute found that 39% of people said financial issues worsened their mental health, while 32% said poor mental health harmed their finances – a cycle that can be particularly acute in retirement.
“Retirement should be a time to enjoy the rewards of your working life, but for many, it brings unexpected stress. Financial uncertainty can be overwhelming, especially in today’s economic climate. Taking control of your finances, whether through professional advice or free guidance services, can boost confidence and support mental wellbeing,” said Ian Futcher, Financial Planner at Quilter.
