The leaked Office for Budget Responsibility (OBR) document has revealed that the salary sacrificed pension contributions over £2,000 will be taxed.
It will no longer be exempt from national insurance from April 2029, the leaked document reveals, therefore pension contributions above £2,000 will then be treated as ordinary employee contributions in the tax system.
It will therefore be subject to the employer and employee national insurance contributions, this will affect the “long-term financial health of employees” and will have a direct impact on businesses.
The document said, “The policy results in an increase in NICs (national insurance contributions) which is estimated to raise £4.7 billion in 2029/30 and £2.6 billion in 2030/31.
“The costing assumes that, in most cases, employee pension contributions above £2,000 that were part of a salary-sacrifice scheme will become subject to employer and employee NICs, either because they move to a standard pension scheme or continue in a salary-sacrifice scheme under the new tax arrangements.”
Matt Russell, CEO at Epassi UK and Zest warned, “Capping pension salary sacrifice will ring alarm bells across the country. It will not only hit the long-term financial health of employees but also impacts businesses who use salary sacrifice as a cost-effective tool to reward staff and boost talent attraction, retention, and productivity.
“These employers will need to find other approaches to support employees or risk losing a competitive edge which will ultimately impact UK growth.”
Tom Groot, CEO, The Electric Car Scheme said, “The Chancellor’s £1.5 billion commitment to electric vehicles should be applauded. Further provisions for the Electric Car Grant, investment in electric charging points, and the retention of electric vehicle salary sacrifice in its current form, will help more middle-income working families to access cleaner transport they otherwise couldn’t afford, delivering positive health and societal outcomes that benefit everyone.
“To go one better, it would have been great to see the Chancellor introduce salary sacrifice for solar panel and heat pump installation, assisting homeowners with rising energy bills and encouraging even more households to make the switch to cleaner and greener energy.
“Salary sacrifice schemes have already helped 680,000 drivers make the switch to EVs. Last year, 20% of new cars sold were electric and 40% of them were acquired through these schemes.
“Our research shows that employees who have access to EV salary sacrifice schemes are three-four times more likely to make the switch over those without access to financial support – 52% of those who have used EV salary sacrifice are basic rate taxpayers. With 51% growth in uptake during 2024 alone, salary sacrifice is rapidly becoming the largest catalyst of EV adoption in the UK. It’s fundamentally reshaping how ordinary working families access clean and affordable transport.
