It would mean people having to pay more National Insurance
Salary sacrifice reforms have moved a step closer to being written into law. At last year’s budget, Chancellor Rachel Reeves announced savers will have to pay National Insurance to HMRC if they boost their pension pots using salary sacrifice by more than £2,000 per year.
Peers earlier this month voted to raise this threshold to a more generous £5,000, in a defeat for the Government. But changes made to the National Insurance Contributions (Employer Pensions Contributions) Bill in the Lords could be reversed by MPs in the Commons, as part of a parliamentary tussle to agree on the final wording known as “ping-pong”
The Bill cleared the upper chamber at third reading on Thursday. Employers can offer salary sacrifice as part of their pension scheme as a tax-efficient way to help workers boost their retirement saving pots. The reforms are due to take effect in April 2029.
“The cost of pension salary sacrifice was set to travel to £8 billion a year by the end of this decade,” Treasury minister Lord Livermore said. “That increase has been driven mostly by high earners, with additional rate taxpayers tripling their salary sacrifice contributions since 2017.
“This includes individuals sacrificing their bonuses without paying any income tax and national insurance contributions on them. The status quo is neither fair nor is it fiscally sustainable.”
The minister also said: “This Bill therefore introduces a cap of £2,000 under which no employer or employee contributions will be charged on any pension contributions.”
He added: “The majority of those currently using salary sacrifice will be unaffected.”
Conservative shadow Treasury minister Baroness Neville-Rolfe said the Bill “prioritises the hope of short-term tax gain over the far more important task of sustaining a system that encourages and rewards responsible pension saving”.
