Rachel Reeves’s salary sacrifice raid to leave almost three million workers poorer in retirement, figures reveal

A freedom of information request has revealed that Rachel Reeves’ £5bn pension raid could leave almost three million workers living on less money in retirement.

The Chancellor announced in November’s Autumn Budget that he would limit the amount workers can pay into their pensions through pay sacrifices.

The Treasury will limit such contributions to £2,000 before they become liable for National Insurance.

This means anything above this figure will be charged eight per cent on basic rate earnings up to £50,270, and two per cent above this at higher rate thresholds.

Reeves’ team say they want to stop high earners from hoarding cash into their pensions without paying a penny in tax, and claim the new policy will save the public purse £4bn.

But the change could lead to 2.9 million taxpayers saving less, according to an FOI request submitted by former pensions minister Sir Steve Webb.

HM Revenue and Customs (HMRC) estimates that 2.3 million people in the top tax bracket will have less money in their pensions as a result of the cap.

The taxman also calculated that 666,000 workers earning less than £50,271 a year would save a smaller amount due to the new limit introduced by the Treasury.

Sir Steve Webb, now an advisory partner at LCP, said the figures showed the policy would be ‘much more damaging’ than HMRC had previously acknowledged and could undermine retirement saving.

‘The government has presented changes to salary sacrifice for pensions as a relatively painless way of eliminating the tax relief that mostly benefits the wealthy,’ Sir Steve told The Telegraph.

‘But these figures show that the effects of the policy will be much more harmful than previously recognised.’

He added: ‘About 25 per cent of these are basic taxpayers. ‘It is not “united government” to emphasize the need for more retirement savings one day and implement a policy that will reduce the retirement savings of millions the next day.’

Salary sacrifice programs allow employees to forfeit a portion of their cash wages in exchange for a non-cash benefit provided by the employer.

These may include items such as a company car, bike rental schemes and workplace creches and childcare, or direct payments into an employee’s pension.

Salary sacrifice allows the employee to pay less income tax and National Insurance because their total taxable gross salary is lower.

“Imposing a £2,000 cap on the National Insurance deduction for pension sacrifice from 2029 is deeply misguided,” Quilter head of pension policy Jon Greer said after the policy was announced in November 2025.

‘At a time when the government recognizes that tomorrow’s retirees risk being poorer than today, policy must focus on encouraging savings and not remove one of the most effective tools we have.’

The new HMRC figures come just weeks after the publication of a landmark pensions review that warned that almost half of Britain’s working population are unable to save enough for a comfortable retirement.

The report found that middle-income earners, women and the self-employed are the categories most at risk.