Tax raid on pension contributions coming in budget, reports suggest – here’s what it would mean for you

The chancellor is set to trim tax breaks on salary sacrifice schemes that allow workers to make pension contributions without paying national insurance.

Rachel Reeves is expected to cap tax-free sacrifices at £2,000 a year, according to reports.

Staff putting away any more than that would have to pay the standard NI rate: 8% if they earn less than £50,000 and 2% above that.

Find tips and deals in the Money blog

The plan would also limit an existing exemption for firms offering salary sacrifice schemes, which currently allows them to offer generous employer contributions.

Companies currently don’t have to pay the 15% employer national insurance tax on cash that goes into workers’ pensions.

What would it mean in cash terms?

A person earning more than £125,000 who sacrificed 20% could pay £460 more, while their employer could pay £3,450 more, according to accountancy firm RSM.

Those on lower salaries would face a much smaller hit. A worker earning £45,000 and sacrificing 5% would pay £30 more, while their employer would pay £34 more.

People earning between £100,000 and £125,140 could be affected the most, given they often use salary sacrifice schemes to sidestep a marginal tax rate of 60% and to keep lucrative child benefits.

Read more from the Money blog:
Make-up artist reveals best dupe
‘My subscription hell after my Dad died’
The 11 steps of buying a house
Why millions of Britons are off long-term sick