Autumn Budget: Pensions
As widely expected, the Chancellor has confirmed plans to introduce a £2,000 cap on salary sacrifice for pension contributions from 2029. The measure—heavily trailed in recent weeks—is aimed at curbing what the Treasury sees as excessive tax and National Insurance savings through salary sacrifice arrangements. However, industry experts warn the change could add complexity without delivering meaningful benefits for most workers.
Penny Cogher, pensions partner at Irwin Mitchell, said: “The Chancellor’s proposed £2,000 cap on salary sacrifice for pension contributions risks adding complexity without delivering meaningful benefits. Payroll teams already face challenges with pension administration, and this change could increase costs and error - particularly for smaller businesses. Many lower-paid workers would still see little advantage, and companies without existing arrangements are unlikely to adopt them for such limited gain.
“A better approach might be to review whether salary sacrifice for pensions remains fit for purpose, ensuring any changes genuinely level the playing field without unnecessary complications.
“For now, the cap is scheduled for 2029, and we’re seeing a surge in businesses implementing salary sacrifice while they still can. Both employers and employees are keen to lock in the tax and National Insurance savings on pension contributions this year, and we expect many to maximise contributions before the window closes.”
Penny added: “We welcome the Chancellor using some of its £14.1 billion surplus as at September 2025 in the Pension Protection Fund and Financial Assistance Scheme to put in place increases for benefits earned before 6 April 1997 that are now being paid by the Pension Protection Fund – the pension industry’s pension lifeboat. At the moment, pre- April 1997 benefits have not increased if an individual’s company pension benefits transferred over to the Pension Protection Fund and Financial Assistance Scheme, even if the pension scheme itself provided pre-April 1997 increases on these benefits. This has resulted in the Pension Protection Fund and Financial Assistance Scheme making a “profit” over the years from these pension schemes and their pensioners and the value of the pensioners’ pensions decreasing in real terms. It is right that some of this is now re-distributed to the affected individuals. As some of them are the oldest and most disadvantaged in society, this approach should have the added advantage of reducing the number of people who claim can state benefits. It will also put some of the Pension Protection Fund’s massive surplus back into the wider UK economy and so gradually increase growth. However there are some significant limits to this. It will only benefit individuals whose original pension scheme provided increases on pensions earned before April 1997 and the increase itself is modest - CPI-linked increases, capped at 2.5% a year from January 2027."
