UK businesses will pay 78% (£2.9bn) of the £3.7bn extra tax the Government expects to raise yearly with its salary sacrifice pension changes from April 2029, according to analysis from Chartered Financial Planning firm Bowmore Wealth.
Former Chancellor Rachel Reeves, now replaced by John Healey, announced in the 2025 Autumn Budget that the amount workers can add to their pensions via salary sacrifice would be capped at £2,000 of pension contributions each year from 6 April 2029.
Above the £2,000 cap National Insurance Contributions (NIC) will be levied leading to a much higher tax bill if salary sacrifice is used.
The change will lead to a sharp increase in NIC contributions for both employers and employees, experts say.
Bristol and London-based Bowmore estimates that UK businesses could lose up to £700m in profits a year as a result of the change.
Individuals are expected to pay 22%, or £800m, of the increased tax bill, according to the research.
Gill Millen, managing director at Bowmore Financial Planning and head of corporate benefits, said: “Everyone agrees that we aren’t saving enough for our pensions and salary sacrifice was delivering some of that much needed (pension) saving.
"Now that we can see the expected burden on businesses I hope that these proposals get watered down – for example by raising the cap from £2,000 to a much more sensible figure of £10,000 per annum.”
Bowmore’s analysis was based on a Freedom of Information response showing how the expected tax yield is split between employers and employees. The figures used are the average of the estimates for 2029/30 and 2030/31, the first full years in which the changes impact and the only years for which data is available.
Separate research from LCP partner and former Pensions Minister Steve Webb found that around 2.9m people could cut back on pension saving as a result of the salary sacrifice changes.
Industry body Pensions UK has also said that the planned cap on annual salary sacrifice contributions will cut pension investing, estimating that 46% of salary sacrifice users will save less as a result.