More than 2.8 million workers are expected to reduce their pension contributions following planned changes to salary sacrifice arrangements from April 2029, new figures by pension consultancy LCP have revealed.

According to HMRC data released after an appeal by LCP partner Steve Webb under the Freedom of Information (FOI) request, around 2.22 million employees earning above the upper earnings limit and a further 666,000 workers earning between the personal allowance and that threshold are expected to cut back on pension saving as a result of the changes. This is believed to be the first time that published figures have been made available on the numbers likely to behave in this way.

The reforms, which will come into force in April 2029, will introduce a £2,000 cap on pension contributions that can be made through salary sacrifice while avoiding employee and employer National Insurance (NI) contributions.

The findings come shortly after the Government’s Pensions Commission estimated that around 15 million working-age people are already saving too little for retirement. The figures suggest the new policy could further weaken retirement savings, with previous estimates indicating lower earners may reduce their contributions by the largest amounts.

The data raises questions over the consistency of Government policy, LCP suggested, with ministers seeking to encourage greater retirement saving while implementing measures that are expected to prompt millions of workers to contribute less to their pensions.

“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,” said Webb.

“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 2.8 million 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."

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