Tax Cap on Salary Sacrifice Schemes Would Harm Pension Savings Warns Aviva Chief Executive

A proposed clampdown on tax advantages attached to salary sacrifice schemes risks disincentivising pension saving in Britain and penalising responsible employers, according to Dame Amanda Blanc, chief executive of Aviva. Delivering her warning ahead of the upcoming budget, Blanc urged chancellor Rachel Reeves to reconsider plans to cap tax relief for salary sacrifice arrangements at £2,000 per year. Under present rules, salary sacrifice enables employees to forgo a portion of their gross pay in exchange for pension contributions and other benefits, reducing both income tax and national insurance liabilities for staff and their employers.

Currently, employees can contribute up to £60,000 per annum to their pensions tax free, but the forthcoming limit on tax free salary sacrifice is forecast to raise an estimated £2 billion a year for the Treasury if implemented. Industry leaders and pensions specialists caution that such a change will increase national insurance costs for companies and workers alike, with the likelihood that employers will reduce the generosity of pension contributions in response.

Blanc criticised the proposed restriction, noting it would penalise those employers investing significantly in their workforce’s future financial security. She emphasised that with an estimated 15 million people in the UK undersaving for retirement, discouraging pension contributions sends the wrong signal and could undermine the nation’s long term financial resilience.

The chancellor previously raised employer national insurance rates in the autumn 2024 budget, drawing criticism from British business representatives. The anticipated cap on salary sacrifice tax relief is viewed as a continuation of fiscal measures that add cost pressures to employers while potentially reducing the incentives for employees to prioritise pension saving.

Blanc spoke on Thursday as Aviva announced strong third quarter results. The insurance and savings provider, which recently completed a £3.7 billion acquisition of Direct Line, nearly doubled its expected annual cost savings from the deal to £225 million by 2028. The group forecasts an operating profit of £2.2 billion this year, reaching its prior 2026 target ahead of schedule. New three year objectives include delivering a return on equity above 20 percent by 2028.

Despite these encouraging financials and positive analyst commentary, Aviva’s share price declined by 6.1 percent to 650p, having recorded substantial gains earlier in the year amid rising investor expectations.