Chancellor Rachel Reeves announced in the Autumn Budget that salary‑sacrifice pension contributions would be capped at £2,000 before National Insurance kicks in. A freedom‑of‑information request shows that the move could reduce the savings of nearly three million workers, including 666,000 basic‑rate taxpayers, according to HMRC estimates.

£2,000 Cap Targets High‑Earners but Hits 2.3 Million Higher‑Rate Workers

The policy would charge an 8% National Insurance rate on contributions above £2,000 for basic‑rate earnings up to £50,270, and a 2% rate for higher‑rate earnings above that threshold. hMRC figures, released after a FOI request by former pensions minister Sir Steve Webb, indicate that 2.3 million higher‑rate taxpayers would cut their pension contributions as a result of the cap.

One‑Quarter of Those Affected Are Basic‑Rate Taxpayers

Sir Steve Webb, now a partner at LCP, warned that the cap would hit 666,000 basic‑rate workers, a figure he described as “far more damaging than previously admitted.” He argued that the policy undermines the government’s own push for higher pension saving.

Potential Revenue Gain of £4 Billion vs.. Reduced Retirement Security

Reeves’ team claims the cap will raise an additional £4 billion for the Treasury by closing a tax loophole that allows high earners to pile cash into pensions tax‑free. Critics, including Jon Greer of Quilter, say the measure is “deeply misguided” and will leave future pensioners poorer.

Uncertain Impact on Middle‑Income Earners, Women and the Self‑Employed

Experts point out that the policy could disproportionately affect groups already at risk of under‑saving, such as middle‑income earners, women and the self‑employed.. The cap is scheduled to take effect in 2029, giving employers and workers time to adjust, but the long‑term effect on overall pension saving remains unclear.

According to the FOI data, the Treasury has not yet responded to the latest figures, and the debate over the balance between raising revenue and encouraging long‑term savings is expected to continue.