Rachel Reeves Pension Tax Raid Cuts Salary Sacrifice Value in 2029
Rachel Reeves pension tax raid will make salary sacrifice less generous from April 2029, affecting a pay arrangement used by nearly two-thirds of UK workers. Mark Futcher said a similar proportion of workers do not know the change is coming, while one in ten still do not know what salary sacrifice is.
The arrangement lets an employee give up part of cash pay in exchange for a benefit. Because the sacrificed amount does not appear as taxable pay, neither the employee nor the employer pays national insurance on it. Marianna Hunt said, "With salary sacrifice, the money goes in before either deduction," and added, "The NI saving is the bit the standard route doesn't give you."
Mark Futcher on worker understanding
Futcher, head of DC pensions at Barnett Waddingham, said: "Nearly two-thirds of UK workers use salary sacrifice, yet a similar proportion have no idea a change arriving in 2029 will make it less generous – and one in ten still don't know what it is." He added: "For a benefit so widely used, most people are still using salary sacrifice on autopilot and without knowing what's going on under the bonnet."
His comments came after a new poll of UK workers on their understanding of salary sacrifice. The figures point to a wide gap between use and comprehension, with one in five workers believing it can only be used for pension contributions even though it can also cover childcare vouchers and company car schemes.
Marianna Hunt on employee choices
Marianna Hunt, personal finance specialist and associate director at Fidelity International, said workers can use salary sacrifice for a pension and a cycle-to-work scheme at the same time if their employer offers both. She said: "I would say if you're interested in salary sacrifice and you know that your company doesn't offer it, it is definitely worth having that conversation," putting the decision back in the hands of employers who choose whether to offer it.
Hunt said some employers pass their national insurance saving directly into the employee's pension. She also said lower earners still get a national insurance saving, though it is smaller than for higher earners.
April 2029 and pay thresholds
The planned changes take effect from April 2029. The squeeze comes as the benefit is often most valuable for workers near tax and benefit thresholds: earners approaching £100,000 start losing their personal allowance, anyone above £60,000 loses child benefit, and pay just above the higher-rate tax threshold is charged 40% on the margin.
A worker earning £105,000 who sacrifices £10,000 into a pension drops to a declared salary of £95,000, with the £10,000 going in before tax or national insurance. Forty-eight per cent of workers do not know whether salary sacrifice affects mortgage borrowing capacity, and nearly a third do not think it does. One in six wrongly believe salary sacrifice can take cash earnings below the national minimum wage, a sign that many workers may need to check the rules before the 2029 change arrives.
