The Society of Pension Professionals (SPP) has written to all MPs, warning that planned restrictions to salary sacrifice for pensions could reduce retirement saving and increase costs for hundreds of thousands of employers and millions of workers.

Following the 2025 Budget announcement, the government confirmed that national insurance contributions (NICs) relief on pension salary sacrifice will be restricted to the first £2,000 of pension contributions per individual from April 2029.

However, SPP said the measure will significantly weaken incentives to save into pensions and create additional complexity for employers.

According to government data cited in the briefing, around 3.3 million people currently using salary sacrifice for pensions will be affected by the £2,000 annual cap.

More than a quarter of those impacted, approximately 858,000 people, are basic rate taxpayers.

Concerns about the impact of the reforms are also reflected in recent research from Pensions UK, which found that nearly half (46 per cent) of UK pension savers using salary sacrifice believe they will end up with smaller pension pots as a result of the changes.

Echoing these concerns, SPP warned that the changes are likely to reduce pension saving at a time when government figures already show that 15 million people are not saving enough for an adequate retirement, rising to 25 million if the state pension triple lock were removed.

Employees wishing to contribute more than £2,000 a year through salary sacrifice will face higher costs, with the impact felt most sharply by basic-rate taxpayers, who pay employee NICs of 8 per cent compared to 2 per cent for higher-rate taxpayers.

The professional body also cautioned that employers may seek to recover increased costs through lower pay rises, reduced pension contributions or slower recruitment.

Meanwhile, employers will also face additional financial and administrative burdens.

From April 2029, employers will be required to pay 15 per cent NICs on salary sacrificed amounts above the £2,000 limit.

Government estimates suggest the policy will affect around 290,000 employers operating pension salary sacrifice arrangements, alongside £20m in one-off administrative costs and a further £30m in ongoing annual compliance costs.

The Office for Budget Responsibility has acknowledged that the reforms are likely to trigger significant behavioural change, including a shift by many savers from salary sacrifice to relief-at-source arrangements, increased interaction with HMRC, and further complexity for individuals and employers.

The restriction will apply to each individual rather than to each employment, meaning those with multiple jobs will need to aggregate pension contributions across all employments.

While the government expects the policy to save £4.8bn in 2029-30, SPP noted that this saving is forecast to fall to £2.6bn the following year and remains subject to uncertainty depending on employer and employee behaviour.

Despite these concerns, SPP chair of the tax group, Steve Hitchiner, urged employers and employees to continue making use of salary sacrifice arrangements while they remain available, noting that although the incentives will be less generous after April 2029, salary sacrifice will still deliver savings, and pensions will remain the most effective way for individuals to save for later life.

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