The pension industry has raised serious concerns about possible Budget measures that could introduce a £2,000 annual limit on salary sacrifice pension contributions.
Chris Eastwood, chief executive and co-founder of Penfold, said the proposal would be “deeply disappointing” and warned it would create another barrier to retirement saving for millions of workers.
In an exclusive interview with GB News, the CEO outlined his guidance to consumers, and the Government, ahead of a potential pensions raid by Rachel Reeves.
He noted that salary sacrifice arrangements are widely used across the UK and serve as a key tool for increasing pension savings beyond minimum auto-enrolment requirements.
Mr Eastwood said: “All the auto enrollment minimums are too low, and salary sacrifice is one of those things that’s really powerful and effective to actually encourage individuals to save more in excess of those minimums.”
He added that nearly half of small and medium enterprises (SMEs) currently offer salary sacrifice schemes to employees.
Workers earning more than £40,000 a year would be most affected by the proposed cap, according to Mr Eastwood’s analysis.
He estimated that individuals earning between £40,000 and £100,000 could see their long-term retirement savings reduced by between £20,000 and £50,000 over their careers.
The financial impact would result in several hundred pounds of reduced annual savings for affected employees.
Research from the Association of British Insurers shows that 38 per cent of Britons would cut their pension contributions if the cap were introduced.
“For savers, it starts to bite for people earning about 40k or more,” Mr Eastwood said.
The pension industry has raised serious concerns about possible Budget measures
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GETTY
He added that the changes would come at a time when households are already facing financial pressure from multiple sources.
Businesses also face additional costs under the proposals.
Mr Eastwood said the changes come shortly after recent National Insurance (NI) increases, adding further strain on employers.
Companies currently benefit from 15 per cent savings on salary sacrifice amounts, which many use to enhance employee benefits or increase pension contributions.
“For employers, it’s another hit, having just had NI rates gone up,” he said.
Mr Eastwood warned that some firms may cut benefits packages or reduce contribution levels to absorb the new costs.
He also questioned Treasury estimates that the measure could raise £2billion
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GETTYHe also questioned Treasury estimates that the measure could raise £2billion.
Mr Eastwood said businesses may restructure pay arrangements to reduce the impact, while implementation would add administrative complexity.
The combined effect of these changes, he said, would leave many employers balancing difficult choices between maintaining staff benefits, sustaining pension contributions and managing wider operational costs.
Despite strong industry resistance, Mr Eastwood believes the salary sacrifice cap is the most likely outcome in the forthcoming Budget.
He highlighted that the £2,000 figure has repeatedly appeared in Treasury briefings, indicating it is under active consideration.
“I think what’s most likely is what keeps coming up in and what’s been briefed is around these restrictions on salary sacrifice, the £2000 number keeps cropping up,” he said.
He added that the measure carries political advantages due to limited public familiarity with salary sacrifice schemes compared to more visible tax changes.
Mr Eastwood said other potential measures are less likely.
He described the removal of employer National Insurance exemptions as “the nuclear option”, noting it would attract significant backlash following recent rises.
He also said flat-rate tax relief or reinstating the lifetime allowance would be more complex to implement and would require extended consultation.
The Penfold chief executive urged ministers not to use pension policy as a short-term fiscal measure.
He warned that frequent changes risk undermining long-term savings behaviour at a time when the UK faces growing demographic pressures.
State Pension Age Graphic
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GB News
“Let’s balance short term with long term. There’s clearly short term needs around fiscal black holes and raising revenue, but paired with that, we have a long term pension savings crisis,” Mr Eastwood said.
He advised employers to begin modelling their exposure to potential policy changes while avoiding premature decisions.
For savers, he urged caution, saying: “Don’t panic, and don’t rush decisions.”
Mr Eastwood also criticised the Government’s approach to policy development through informal briefings.
He said this created avoidable anxiety among workers and employers and risked prompting decisions that could harm long-term saving.