Reeves must scrap pension tax grab now 

Chancellor Rachel Reeves must drop her pensions tax raid plans before it’s enshrined in law, warns the CEO of one of the world’s largest independent financial advisory organisations.

The warning from deVere Group’s Nigel Green comes as the House of Lords is this week set to scrutinise legislation that would impose a £2,000 annual cap on national insurance relief for pension contributions made via salary sacrifice.

It’s a move that industry analysis shows could strip tens of thousands of pounds from individual retirement pots over time.

Nigel Green says: “The pension tax grab is getting closer and closer to becoming law.

“This proposal is both economically short-sighted and socially counterproductive.

“At a time when the government’s own pensions review has acknowledged that millions of Britons are not saving enough, ministers are pressing ahead with a measure that actively discourages disciplined, long-term retirement planning.”

Under the planned reform, from April 2029 pension contributions above £2,000 made through salary sacrifice would become liable for national insurance, though income tax relief would remain.

Salary sacrifice currently allows employees to exchange part of their gross pay for pension contributions, reducing both income tax and national insurance liabilities, while employers also save 15% in national insurance on the amount sacrificed.

The deVere CEO comments: “Capping national insurance relief at £2,000 a year fundamentally changes the incentive structure.

“It weakens one of the most efficient mechanisms available to middle and higher earners to build adequate retirement provision.”

The Treasury may forecast a £4.7 billion gain in 2029–30, but that headline figure ignores the behavioural response that the Office for Budget Responsibility itself expects.

“Revenues are projected to fall sharply the following year as employers and employees adjust.”

According to government figures, around 3.3 million of the 7.7 million workers using salary sacrifice currently contribute more than £2,000 annually and would be directly affected. The OBR anticipates that number will rise by the time the cap takes effect, reflecting workforce growth and increasing pension engagement.

Nigel Green says: “The claim that only a minority will feel the impact is misleading.

“Employers will not absorb a multi-billion-pound increase in national insurance without consequence.

“Many will scale back pension generosity, moderate pay awards, or abandon salary sacrifice arrangements entirely.

“The impact will ripple far beyond those immediately breaching the threshold.”

He continues: “Compounding is unforgiving. Even modest annual reductions in contributions translate into substantial shortfalls over 25 or 30 years.

“The government should understand that undermining contribution levels today creates greater fiscal strain tomorrow.”

The state pension already costs the Exchequer around £146 billion annually, about 5% of GDP.

Long-term demographic pressures are intensifying as longevity rises and the ratio of workers to retirees declines.

Discouraging private saving increases the probability that future governments will face even heavier public pension obligations.

“The contradiction is striking. On one hand, the government’s pensions commission warns that four in ten adults are under saving, with some analysts suggesting the true figure is higher,” notes Nigel Green.

“On the other, a new cap penalises those who are taking responsibility. Policy coherence matters. You cannot promote higher saving while eroding the mechanisms that make it achievable.”

He concludes: “Rachel Reeves must abandon the pension tax grab plan before it becomes law.

“Pressing ahead with this cap risks embedding lower retirement outcomes for millions.

“The responsible course is to withdraw it and pursue reforms that genuinely address chronic under saving rather than deepening it.”