Rachel Reeves pension tax raids pushing firms to scrap salary sacrifice schemes entirely

Joe Sledge
Wed, 15 Apr 2026 19:30:10 +0000

Nearly four in 10 private sector employers are planning to scrap pension schemes that involve salary sacrifice following Rachel Reeves’s decision to introduce a £2,000 cap on national insurance relief, according to new research.

The study by Standard Life, which surveyed 500 private companies in February, found 39 per cent are preparing to withdraw the schemes entirely.

A further one in ten firms offering salary sacrifice have already decided to remove the benefit.

The findings highlight concerns about retirement savings in the UK as employers respond to the policy change.

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Salary sacrifice allows employees to divert part of their salary into a pension, reducing the amount of income subject to tax and national insurance.

Employers also benefit through lower national insurance contributions when staff participate in the arrangements.

However, the Chancellor announced pension contributions eligible for national insurance savings will be capped at £2,000 per year.

The measure is due to take effect from April 2029 and is expected to raise £4.7billion in its first year.

Workers currently pay national insurance at eight per cent on earnings between £12,570 and £50,270, with a rate of two per cent applied above that threshold.

Employers pay national insurance at 15 per cent on salaries above £5,000, following an increase from 13.8 per cent in April last year.

Standard Life analysis suggests employees and businesses will face higher costs once the cap is introduced.

An employee earning £50,000 and contributing five per cent of their salary through salary sacrifice would see their national insurance bill rise by £40 per year.

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Their employer would face an additional £75 in costs.

A worker earning £75,000 with the same contribution rate would pay around £35 more annually.

However, their employer would see a larger increase of £263 in national insurance costs.

Many employees use salary sacrifice arrangements to manage tax thresholds, including the £100,000 level at which personal allowances begin to reduce.

Catherine Foot, director at Standard Life, said: "The UK has a widespread under-saving problem. Minimum workplace pension auto-enrolment levels are insufficient, with 15 million people heading for financial insecurity in retirement."

She added: "Our analysis finds that a lower earner is most likely to be affected not directly but indirectly by the knock-on consequences that this has for businesses, while middle and high earners will have the double whammy of extra costs themselves and the effects of higher payroll costs for their employer."