Pension tax raid to cost British workers £468million as HMRC raid looms

Thank you for subscribing!

Upcoming changes to the tax regime will impact workplace salary sacrifice pension schemes

British workers should prepare to be slapped with a £468million tax bill as part of HM Revenue and Customs' (HMRC) raid on workplace pension schemes, according to new figures.

Freedom of Information (FoI) data has exposed the scale of the financial burden facing employees under Labour's salary sacrifice crackdown, with workers set to hand over hundreds of millions in National Insurance contributions once the policy takes effect in April 2029.

The newly disclosed figures reveal that employers will bear the lion's share of the £3.5billion National Insurance bill, absorbing roughly £3billion, while the remaining sum hits workers directly through increased deductions from their pay packets.

Former Chancellor Rachel Reeves introduced the measure at her final Budget, imposing a £2,000 ceiling on pension contributions made through salary sacrifice arrangements before they become subject to NICs.

Prior to the FoI disclosure from Bowmore Wealth Group, the Office for Budget Responsibility (OBRT) had estimated that the Treasury would collect £3.5billion in additional National Insurance receipts during 2029-30.

However, the Government's fiscal watchdog offered no indication of how that sum would be divided between employers and employees.

The tax authority noted in December that 4.3 million people, representing 56 per cent of the 7.7 million workers enrolled in salary sacrifice schemes, would be unaffected by the new rules, as their pension contributions fall beneath the £2,000 annual threshold.

For those who are caught by the cap, HMRC calculated that the average worker would face an extra £84 per year in National Insurance charges.

Under existing rules, salary sacrifice arrangements enable employees to redirect part of their pre-tax pay into workplace pensions, avoiding both income tax and National Insurance on those contributions.

Employees currently pay National Insurance contributions at eight per cent on earnings between £12,570 and £50,270, with a two per cent rate applying above that level.

Sir Steve Webb, a former pensions minister now at consultancy firm LCP, argued that the £3billion employer burden would inevitably filter down to staff.

Speaking to The Telegraph, he said: "Ultimately, companies are comprised of their suppliers, their employees and their owners. That £3billion is going to come from wages, prices or dividends."

His warning is supported by the OBR's own assessment, which concluded that businesses maintaining salary sacrifice schemes would likely shift 76 per cent of their additional costs onto employees.

In total, the Treasury anticipates raising £4.8billion in the first year after the cap comes into force, with £1.4billion of that sum stemming from higher income tax receipts.

Gill Millen, managing director at Bowmore Wealth Group, said: "This is an immediate income tax boost for the Treasury and then it's a fingers-crossed moment, hoping that a lot of people might not get around to claiming what is theirs.

"We are going to see a lot of ordinary workers actually reduce their future pension potential as a result of this policy."

Separate FoI data obtained by LCP revealed that HMRC expects more than 2.8 million workers to reduce their pension contributions in 2029-30 as a direct consequence of the new rules.