New FOI reveals ‘nearly 3 million workers’ expected to cut back on pension saving following salary sacrifice changes

A Freedom of Information (FOI) request to HMRC by LCP Partner Steve Webb has revealed that more than 2.8m workers are expected to cut back on pension saving once new restrictions on salary sacrifice come into force in 2029.

This comes in the month when the Government’s Pensions Commission estimated that around 15 million people of working age are under-saving for retirement even before this new policy comes into force.

The policy in question is the plan to apply a £2,000 cap to the amount of employee pension contribution which can be paid through ‘salary sacrifice’ whilst avoiding employee and employer NI contributions. The change will come into force in April 2029.

The original FOI covered a range of aspects of this policy and was tabled in February but HMRC initially refused to answer some parts on the basis that it related ‘to the formulation or development of government policy’. Steve Webb appealed against this refusal and eventually, in May, HMRC agreed to provide additional information.

A key ‘behavioural’ impact of the salary sacrifice change, according to the OBR’s assessment, is that some people are likely to cut back on the amount they save into a pension.  In simple terms, if someone’s NI bill goes up as a result of the 2029 changes, they may try to reduce the impact on their disposable income by saving less into a pension. Until now there have been no published figures on the numbers likely to behave in this way.

But the final FOI reveals over 2.8m workers are expected to cut back on pension saving, as shown in the Table from the FOI.

Table. Number of employees that are assumed to cut their contributions in 29/30

Source: HMRC FOI reply to Steve Webb, May 2026

Most of those earning above the ‘Upper Earnings Limit’ (currently £50,270 per year) are likely to be higher rate taxpayers, but the 666,000 people will generally be basic rate taxpayers. And the OBR has previously estimated (Costing of charging NICs on salary-sacrificed pension contributions) that it is lower earners who will reduce their contributions by the most.

Commenting on the figures, Steve Webb, partner at LCP, said:

“The Government has presented the changes to salary sacrifice for pensions as being a relatively painless way of cracking down on a tax break mostly enjoyed by the well off. But these figures show that the effects of the policy will be far more damaging than had previously been admitted. At a time when the Government is running a major Commission to tackle the issue of pension under-saving, it is shocking that a separate government policy will result in over 2.8m workers cutting back on pension saving. Nearly 1 in 4 of these are basic rate taxpayers. It is hardly ‘joined-up government’ to be stressing the need for more pension saving one day and then implementing a policy that will reduce the pension savings of millions the next.”