Analysis from the Office for Budget Responsibility (OBR) has revealed the potential scale of the impact changes to pension salary sacrifice arrangements could have on 'ordinary' workers.

Supplementary figures published by the OBR showed that the impact of the reforms, announced in the 2025 Budget, could extend well beyond higher earners.

From April 2029, employee pension contributions made via salary sacrifice above £2,000 a year will be subject to both employee and employer National Insurance contributions (NIC).

Previous government analysis estimated that around 7.7 million employees currently use salary sacrifice for pension contributions, with roughly 3.3 million sacrificing more than £2,000.

On this basis, ministers argued that only this group would be adversely affected, while the remaining 4.3 million workers contributing less than £2,000 would be fully protected.

However, the OBR’s new analysis, produced following a request from LCP partner, Steve Webb, suggested that many of those contributing below the £2,000 threshold could also face losses as employers respond to the policy.

The organisation highlighted three main channels through which the effects could spread across the workforce.

Firstly, employers may move away from salary sacrifice altogether by increasing employer pension contributions in place of wage growth or by reducing contractual pay in exchange for higher contributions.

The OBR noted that, under operational remuneration rules, any such changes would need to be applied across the workforce rather than limited to higher earners, potentially resulting in lower future pay rises or reduced base pay for employees contributing less than £2,000.

Secondly, some employees may be moved to make standard pension contributions, including through relief-at-source schemes.

In these cases, workers would lose the NIC advantages of salary sacrifice, increasing their NIC bill even if they contributed modest amounts.

Those in relief-at-source schemes could also face additional administrative complexity, as they would need to reclaim higher-rate tax relief directly.

Thirdly, the OBR assumed that employers would pass through around three-quarters of the additional NIC cost to employees, mainly through lower wages.

This 'pass-through' effect would again hit workers below the £2,000 threshold, despite being classed as protected under the original government assessment.

Overall, the OBR’s costing assumed a significant behavioural response from employers and employees, reducing the policy's long-term yield by almost half relative to a purely static estimate.

While the measure was forecast to raise £4.7bn in 2029/30, receipts are expected to fall back in subsequent years as these behavioural effects feed through.

Commenting on the findings, Webb warned that the analysis undermined claims that ordinary workers will be shielded from the changes.

“The Budget change to salary sacrifice rules around pensions was a huge measure which will cause employers to rethink their pay and pensions policies,” he said.

“The independent OBR shows very clearly that there are a range of ways in which employers will respond, which will affect the wider workforce and not just those contributing over £2,000 via salary sacrifice.

“Far from ordinary workers being ‘protected’ from the changes, we could see millions of people on modest incomes losing out as well, further undermining their incentive to save in a pension.

"We urgently need the government to be clear about the true scale of the losses from this policy and not continue to suggest that ordinary workers will not be affected.”

The OBR added that it did not hold detailed distributional data on who would ultimately bear the cost of the reforms, noting that further analysis would need to come from HM Revenue & Customs and HM Treasury.

The changes to salary sacrifice rules are already prompting growing concern among employers and savers, with research highlighting significant financial and strategic implications.

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