As of April 2029, there will be a new £2,000 yearly cap on how much money can save into your pension through salary sacrifice schemes
11:28, 05 May 2026Updated 11:35, 05 May 2026
Employers have suggested they may scrap salary sacrifice schemes(Image: Getty)
Huge changes to pension saving rules are prompting employers to consider axe popular workplace schemes, according to new research.
As of April 2029, there will be a new £2,000 yearly cap on how much money can save into your pension through salary sacrifice schemes.
Salary sacrifice is where you agree to give up part of your pre-tax salary for a non-cash benefit, such as payments into a pension scheme.
As you exchange a portion of your salary before tax and National Insurance contributions are calculated, this lowers your gross salary, meaning you pay less tax overall. It also means your employer pays less National Insurance.
But new research from the Standard Life Centre for the Future of Retirement shows two in five (39%) business leaders who currently offer salary or bonus sacrifice schemes say they are less likely to provide the scheme in future.
One in ten (11%) employers whose organisations currently offer salary sacrifice saying they have already decided to withdraw the scheme completely.
Leaders of small businesses (10-49 employees) were most likely to say that tax-free cap on salary sacrifice schemes would impact them, with half (49%) saying they would be less likely to offer the scheme in the future.
Nearly two thirds of (65%) employers say they currently offer either salary sacrifice or bonus sacrifice schemes, with a third (32%) offering both.
The new report comes after the House of Commons rejected a House of Lords amendment to raise the cap to £5,000.
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, comments: “The UK has a widespread under-saving problem.
“Current minimum workplace pension auto-enrolment levels are insufficient, with 15 million people currently heading for financial insecurity in retirement.
“The cap on salary sacrifice schemes will end up worsening this crisis by creating additional cost barriers that disincentivise employers from offering the scheme, with significant implications for their employees’ ability to save.”
There is currently no cap on how much you can save into your pension through salary sacrifice, although most people have an annual allowance of £60,000 for how much they can pay into their retirement pot before they pay tax.
Your allowance might be lower if you have a high income or you have already flexibly accessed your pension pot.
You will usually have a tapered annual allowance if your “threshold income” is over £200,000 and your “adjusted income” is over £260,000.
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