It amazes me that firms that are billionaires with pockets lined with our money are turning down the opportunity to convert to CDC but moan that national insurance breaks will be reduced.
Has it not occurred to the moaners that the National Insurance not being paid by the smarties is not going to pay for health care, education and transport?
The CDC product available for these big firms could convert pots to pensions and provide up to 60% more in pension, but pensions are not what the billionaires are after. The wealthy in this country want tax-breaks left right and center.
Is the only way we can think of pensions as a series of tax and NI bungs for the well off? How about improving the lot for everyone by making sure we all get a fair deal from our saving. I’m disappointed that Guy Opperman and Steve Webb are teaming up with the DC schemes to moan rather than promoting CDC which they both introduced with legislation in 2015 and 2020.
Here’s an extended moan featured in the Times. You can find it via this link.
You won’t hear a word in this article about the possibility that savings can be converted into pensions with up to 60% more pension for the pound. That’s not on the fat cat’s agenda.
Britain’s biggest pension firms, wealth managers and two of its longest-serving pensions ministers are urging the chancellor to reverse her salary sacrifice raid in a win for The Times’s Smarter with Money campaign.
Rachel Reeves announced in November she would cap the amount a worker can pay into their pension tax-free at £2,000 a year. After that, contributions will incur national insurance. The move, which will come into effect in April 2029, is expected to raise £4.7 billion for the Treasury in its first year.
The Times is campaigning for this to be reversed as it risks undermining savers’ confidence in their pensions. We now have the backing of two former pensions ministers, Guy Opperman and Sir Steve Webb, as well as the Association of British Insurers, which represents 300 member companies that manage a combined £1.4 trillion.
Other major pension companies and wealth managers Standard Life, Fidelity International, Hargreaves Lansdown, Netwealth, Shackleton, St James’s Place, Rathbones and Quilter have also pledged their support.
Opperman, the former Conservative MP who was pensions minister between June 2017 and September 2022, said:
“The change to salary sacrifice is an ill-thought-through policy done primarily to satisfy the Office for Budget Responsibility. It will obviously impact saving, and there will be a negative long-term effect on people’s savings and pensions.”
Mike Ambery from Standard Life — part of the UK’s largest pensions company, Phoenix Group, which has £295 billion in assets under administration — said:
“Retirement savings levels in the UK are a way off where they need to be and employers and workplace pensions are central to addressing this challenge.
“Capping salary sacrifice will create an invidious choice, either millions of employees will have to stump up more to maintain their pension contributions or employers will need to step in and offset the cost. We need to be increasing levels of pension saving, not making it more expensive.”
Salary sacrifice allows workers to give up part of their gross salary in exchange for benefits, notably pension contributions. The money comes out of pay before it is subject to income tax or national insurance. Employees can pay up to £60,000 a year into their pension scheme this way. The Treasury estimates 3.3 million people sacrifice more than £2,000 per year.
Reeves’s changes mean a worker who earns £52,000 a year and makes 10 per cent employee contributions into their pension using salary sacrifice will pay an extra £256 a year in national insurance, according to calculations by the consultancy, LCP.
The government is in the middle of a review into pension saving and there are worries that millions could be on track for poverty in retirement. In July, the pensions commission reported “stark findings” that 45 per cent of adults were saving nothing for retirement.
Liz Kendall, then the work and pensions secretary, said the commission would aim
“to tackle the barriers that stop too many saving”.
Mark FitzPatrick, the chief executive of St James’s Place, Britain’s largest wealth manager with £220 billion under management, said:
“Any change affecting pensions needs real caution, because it risks unsettling confidence in one of the most effective and established long‑term savings vehicles. Millions already face uncertain or insufficient income in retirement, and tightening the rules around salary sacrifice risks making pension saving feel more complicated and less appealing at a time when simplicity matters most.
“We would welcome a rethink on salary sacrifice, recognising that the government ultimately has a difficult fiscal balancing act to manage.”
Sir Steve Webb, the former Liberal Democrat MP and the pensions minister between May 2010 and May 2015, said:
“Employers will not simply swallow this multibillion-pound tax rise. Instead, they will squeeze pay rises and the generosity of workplace pensions, and this will affect everyone in a workplace that uses salary sacrifice.”
The OBR, the government fiscal watchdog, said that all 7.7 million pension savers who use salary sacrifice, even if they do not pay in more than £2,000, could be affected by the policy depending on how businesses responded to the cap.
Polling by the ABI and by the Reward and Employee Benefits Association has also suggested that the changes could lead to more savers paying less into their pension, and employers that make higher pension contributions than they have to would consider reducing them.
A spokesman for the Treasury said:
“Salary sacrifice costs were set to treble to £8 billion as high earners piled in huge bonuses without paying a penny in tax — a taxpayer‑funded perk largely benefiting the better off.
“Our fair reforms protect 95 per cent of workers earning under £30,000 who use salary sacrifice and simply bring salary sacrifice above £2,000 into line with other pension contributions — with only those making the very largest pension contributions affected.”
Forget about losing an NI break in a couple of years; CDC’s a lifetime payrise.
and it doesn’t need to rely on national insurance breaks to do so!
Could I ask that we disagree agreeably.
You might ask why salary sacrifice was not more widely utilised in the last three decades when for almost all members it effectively added 29% more investment for the member’s contribution.
Why did payroll software not enable a simple opt in?
Can we also remain objective about 60% claims for an untried collective without the safety net of a protection fund similar to the one for the support of the thousands of failed DB
Webb is right in that confidence is already shaken by retrospective legislation. The % of the market is small that understand the issue. However it is the % that writes the cheques.
For my benefit – can you explain how salary sacrifice interfaces with CDC (“Collective Defined Contribution”).
Is not the employer’s commitment in CDC determined in the same way as in DB as a percentage of pensionable pay? Is it expected that the CDC scheme can receive additional one-off employer contributions for a selected individual member – and if so would that not introduce great interpersonal unfairness?
To me it appears that salary sacrifice is a way to try and compensate for the inefficiencies and the poor value for money provided by any DC pension offering for all the reasons set out in the arguments about whether 60% is the correct measure of relative efficiency of UMES CDC over DC.
For me profit extraction by the providers is a major issue – comparing the situation with closed DB where annuitisation of the benefits has cost 70% more than run on with scheme funds.
While I appreciate you and others have got to work with the legislation and regulations we have in place, have we not missed a trick by defining CDC as collective DC and not as an unguaranteed targeted pension (UTP)?
For contributions, CDC and DC are alike and CDC will not get the “break” of salary sacrifice any more than DC schemes. The NI will go to the health service, the state pension and benefits. CDC will more than fill for any loss of benefits from DC not getting the funding of the tax break.
The fixing of retirement age pushes the choice of using extended lifetime to increase time in retirement.
Try other variables such as time in retirement fixed (say 15 years) and economic activity extended. This would add about 1-2% to GDP and reduce the cost of contributions during lifetimes have sent an early model to John Q to critique
I did this with my own pension with two stages to go next one at age 87 ( I was 78 yesterday) and a date of death ambition of 104 the surplus to go to a spouse 10 years younger. Seems to be working apart from threats of current legislation giving forced liquidation of infrastructure long term investment.
Belated happy birthday and many happy returns.
Are you a leap year baby, may I ask?
1948
But I meant were you born on the 29th or the 28th that year?
“… it effectively added 29% more investment for the member’s contribution.”
It’s only going to be true if the employee and employer both use their NI saving to improve the member’s pension. I don’t know where this is true for any DB scheme; typically they both keep the savings. So the member just gains the relevent percentage of the sacrificed pay (8% or 2%) as an increase in take-home pay.
And is only true for some DC schemes. Does anyone have the figures, but my guess is that it’s only a minority of employers that pay their share of the saving into the member’s pension “pot”?
2023 research for HMRC
http://www.gov.uk/government/publications/understanding-the-attitudes-and-behaviours-of-employers-towards-salary-sacrifice-for-pensions/understanding-the-attitudes-and-behaviours-of-employers-towards-salary-sacrifice-for-pensions
Qualitative research not intended to be statistically representative of the wider population.
Employers not offering salary sacrifice for pensions were asked why they did not offer it. Some said it was because of the additional administration required, some felt that the size of the business meant it was not worth it, and some did not know enough about it to offer it.
Most employers that did offer it said, as you suspected Bryn, that they did not use the NI savings from the salary sacrifice arrangement to directly fund their workplace pensions, or to improve the generosity of the employer pension contributions.
HMRC didn’t publish a summary of its research – based on data collected in summer 2023 and dated January 2024 – until May 2025.
Salary sacrifice cost as NI relief increased markedly from £2.8 billion in forgone contributions in tax year 2016 to 2017, rising to £5.8 billion in tax year 2023 to 2024. Were no changes made, it was expected that this would nearly triple from 2016/17 to £8 billion by tax year 2030/31.
* While 56% of users (approx. 4.3 million) are expected to be unaffected, around 3.3 million employees (44%) who sacrifice more than £2,000 will be impacted.
* The proportion of organisations using salary sacrifice for pensions rose to 83% in 2025, up from 77% in 2023.
* Following the 2024 Autumn Budget increases in NI, 43% of employers made changes to their benefits packages by introducing or adjusting salary sacrifice schemes.
* While overall usage is high, adoption varies by employer size, mainly companies with 250+ employees using them, compared to smaller firms using them less.
* 63% of employers expect to retain the NIC savings rather than pass them on to employee pensions.
broadstone.co.uk/wp-content/uploads/2025/11/employee-benefits-landscape-report1125.pdf
In singing the praises of CDC you suggest that it could deliver 60% better outcomes. It could of course also deliver less. There is no certainty that CDC would be better and it’s important to explain that the range of outcomes from DC and CDC will be different.
I see the legislation on CDC as being permissive to allow employers to choose that as the structure to offer their staff. But unless CDC itself can be shown to be the deliverer of higher economic performance in assets overall, the mean outturn in returns from CDC are likely to be the same as plain DC.
Pingback: Is salary sacrifice improving pensions or starving our national insurance? | AgeWage: Making your money work as hard as you do
Peter, firms that adhere to actuarial principles all rate the CDC pension 50% better than save then annuitize. These include Hymans, Aon, WTW, LCP and Aon. Add to that PPI who estimate 75% more and that’s a reasonable group of sources to support the “up to 60%” view. Of course many employers won’t out of inertia and many will wait to see how it goes, some will rightly point out that people get more flexibility from drawdown and certainty from annuities. But it is a shame that 12 years after Steve Webb put forward the Defined Ambition proposal, we are at one scheme. I’m pleased to see the initial results of that CDC scheme positive and see no reason why others should not deliver too!