Chancellor, Rachel Reeves, is set to announce plans to charge National Insurance on salary sacrifice pensions above £2,000, forecasting from the Office for Budget Responsibility (OBR) has revealed, in a move that is expected to raise £4.7bn in 2029/30 and £2.6bn in 2030/31.

The OBR's forecast also revealed that Reeves is set to extend the freeze on income tax thresholds, which could see many more pensioners paying tax .

The document confirmed that salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from national insurance contributions (NICs) from April 2029.

This means that salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system and therefore be subject to both employer and employee NICs.

The OBR's report was based on the assumption that many employees will switch to making ordinary pension contributions.

The salary sacrifice changes are likely to prove unpopular, as industry experts previously rallied behind calls for Reeves to reconsider them, pointing out that even the government's own research suggested they could damage morale around pension saving.

The pensions industry is not alone in opposing salary sacrifice changes, as the Federation of Small Businesses also co-signed a letter to the Chancellor urging her to reconsider changes to pension tax or salary sacrifice.

In addition to this, research from the ABI and Reward and Employee Benefits Association (REBA) found that, if the government were to introduce a £2,000 threshold on salary sacrifice for pension contributions, 31 per cent of businesses would reduce their contributions to an employee’s pension, and 45 per cent would reduce other employee benefits and services.

This is not the only change causing concern for pensions, however, as the Chancellor is also set to confirm a continued freeze on tax income allowances.

The former government froze the UK personal income tax allowance at £12,570 on 6 April 2022, with further extensions since, meaning it is still in place.

The number of pensioners paying tax has already increased significantly as a result of the freeze, as modelling by LCP partner, Steve Webb, revealed that, in 2021/22, when the freeze started, there were around 6.7m pensioners paying tax, compared with 8.7m today.

Forecasting from the OBR, released ahead of the Budget in error, has suggested that Reeves will now extend this freeze until 2029/30, in a move that is expected to raise £8bn.

Confirmation of the continued freeze on allowances could prove problematic for many pensioners, particularly following the news that the state pension is set to increase by 4.8 per cent under the triple lock, as also confirmed in the Budget.

Indeed, Webb's modelling revealed that, if the Chancellor were to extend the freeze on income tax thresholds for another two years, this would mean an extra half million state pensioners paying income tax, even when allowing for the increase in the pension age from 66 to 67.

This means at least 9.3 million pensioners paying tax, representing around three-quarters of all pensioners, compared with around 8.7 million today.

However, if inflation or wage growth picks up in the coming years, leading to larger state pension rises, Webb found that there could "easily" be 10 million pensioners paying income tax by the end of the decade.

This builds on previous research from the Institute for Fiscal Studies (IFS), which showed that, without an exemption, pensioners with low incomes will be required to begin paying tax directly to HMRC from 2027, creating an administrative burden for millions.

This has also prompted concern in the political sphere, as Liberal Democrat Spokesperson and Deputy Leader, Daisy Cooper MP, warned that this "stealth tax is yet another unfair measure that will penalise pensioners and hammer the low-paid".

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