Rachel Reeves’ £5billion pensions raid could leave almost three million workers with less money to live on in retirement, a freedom of information request has revealed.
The Chancellor announced in November’s Autumn Budget that she would be limiting the amount workers can pay into their pensions via salary sacrifice schemes.
The Treasury is set to cap such contributions at £2,000 before they become liable for National Insurance.
That means anything over that figure would be charged at 8 per cent on basic rate earnings, up to £50,270, and 2 per cent above that in the higher rate thresholds.
Reeves’ team say they are looking to stop high earners from being able to ‘pile’ cash into their pensions without paying a ‘penny in tax’ – and claim the new policy will generate £4billion for the public purse.
But the change could lead to 2.9 million taxpayers saving less, according to a Freedom of Information request submitted by former pensions minister Sir Steve Webb.
HM Revenue & Customs (HMRC) is estimating that 2.3 million people in the higher tax bracket will put less into their pensions as a result of the cap.
The taxman has also calculated that 666,000 workers earning less than £50,271 a year will save a smaller amount due to the new Treasury-imposed limit.
Rachel Reeves poses with the red Budget box outside her office in Downing Street, London, on November 26, 2025
Sir Steve Webb, now partner at consultants LCP, said the figures showed the policy ‘will be far more damaging’ than HMRC has previously acknowledged and may undermine pension saving.
‘The Government has presented the changes to salary sacrifice for pensions as being a relatively painless way of cracking down on a tax break mostly enjoyed by the well-off,’ Sir Steve told The Telegraph.
‘But these figures show that the effects of the policy will be far more damaging than had previously been admitted.’
He added: ‘Nearly 25 per cent of these are basic rate taxpayers. It is hardly “joined-up government” to be stressing the need for more pension saving one day and then implementing a policy that will reduce the pension savings of millions the next.’
Salary sacrifice schemes allow workers to forfeit a portion of their cash pay for an employer-provided non-cash benefit.
These can include items like a company car, bicycle hire schemes and workplace nurseries and childcare – or a direct payment into an employee’s pension pot.
Salary sacrifice allows the worker to pay less income tax and National Insurance since their overall gross taxable salary is lower.
‘Introducing a £2,000 cap on National Insurance relief for pension salary sacrifice from 2029 is a deeply misguided move,’ Jon Greer, head of retirement of policy at Quilter, said after the policy was announced in November 2025.
‘At a time when the Government acknowledges that tomorrow’s pensioners risk being poorer than today’s, policy should be focused on incentivising saving and not dismantling one of the most effective tools we have.’
The new HMRC figures come only weeks after the publication of a landmark pensions review warned that nearly half of the British working population are failing to save sufficiently for a comfortable retirement.
Middle-income earners, women and the self-employed were the categories most at risk, the report revealed.
