Nearly three million (2,888,000) workers are expected to reduce their pension contributions when salary sacrifice changes comes into effect in 2029, a freedom of information (FOI) request from LCP to HMRC has revealed.

The FOI response, obtained by LCP partner, Steve Webb, showed the Office for Budget Responsibility (OBR) expected the majority (2.22 million) cutting contributions to be higher rate taxpayers, while an estimated 666,000 were forecast to be basic rate taxpayers.

Under the reform, a £2,000 cap will be placed on the amount of pension contributions that can be paid through a salary sacrifice scheme without being subject to national insurance contributions (NIC).

According to the OBR’s assessment, a key behavioural impact of the changes would be some people being likely to reduce the amount they save into a pension.

Webb noted that when he initially tabled the FOI request, which covered a range of aspects of the policy, to HMRC in February, answers to part of the request were refused as it ‘related to the formulation or development of government policy’.

He appealed this decision and HMRC agreed to provide additional information in May.

“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,” Webb stated.

“But these figures show that the effects of the policy will be far more damaging than had previously been admitted.

“At a time when the government is running a major commission to tackle the issue of pension under-saving, it is shocking that a separate government policy will result in over 2.8 million workers cutting back on pension saving."

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