How many more hits can private pensions take?

As someone who actively encourages people to save into a private pension, it really rattles my cage that private pensions keep being raided to help fill Rachel Reeves’ fiscal black hole.

Each change is presented as modest, sensible or unavoidable. Taken together, they tell a very different story.

Private pensions have already endured a long period of setbacks:

– Defined benefit schemes in the private sector have almost disappeared;
– Investment risk has been pushed onto individual savers;
– Employer contributions have settled at the legal minimum rather than anything close to what would deliver a comfortable retirement;
– Wages have struggled to keep pace with the cost of living;
– More recently, even the long-held assumption that pensions would sit safely outside inheritance tax has been undermined.

And now, salary sacrifice is back in the spotlight.

Individually, each of these changes can be defended. Collectively, they amount to a steady weakening of the private pension, once held up as the cornerstone of retirement planning and personal responsibility.

People are repeatedly told they must save more for their own future, only to find that the goalposts keep shifting.

Salary sacrifice is simple at its core. Employees give up part of their pay in exchange for higher employer pension contributions, reducing income tax and national insurance in the process. It is widely used in the private sector and by company directors, and has long been encouraged because it nudges people to save more.

Restricting it is politically convenient. It sounds technical. It affects a minority. It can be framed as closing a loophole rather than raising taxes. And it delivers a short-term boost to Treasury forecasts.

But salary sacrifice does not create a new layer of pension generosity – it simply changes the route money takes into a pension.

The decision to save still rests with the individual. The state gives up some tax revenue today in exchange for lower reliance on public spending tomorrow. Undermine that trade-off, and the bill does not disappear. It is merely deferred.

If the concern is genuinely the long-term cost of pensions to the public finances, it is fair to ask whether this is the right lever to pull. Because when pitched against the cost to the state of public sector pensions, revenue raised from cuts to salary sacrifice starts to look like small fry.

Public sector pensions are fundamentally different from what most private sector workers now have. They are defined benefit schemes, meaning the level of retirement income is promised in advance and underwritten by the taxpayer.

Investment risk, longevity risk and inflation risk all sit with the state rather than the individual. That is why these schemes remain expensive, even as private sector provision has been steadily pared back over the past three decades.

Just to be clear, this is not a criticism of public sector workers. For years, more generous pensions formed part of how the public sector attracted and retained staff, often substituting for higher wages.

That arrangement has benefits, but it also carries a cost that does not disappear simply because it is uncomfortable to discuss.

Public sector pensions also account for a large share of pension-related tax relief. However, it’s important to note that this is because public sector workers typically contribute far more of their salary into pensions than private sector workers, sometimes 10% to 12% rather than the 5% that has become common elsewhere.

Higher contributions naturally generate higher income tax relief.

That being said, what is often missed is that tax relief itself is not what drives the real cost to the Treasury.

Relief is easy to target because it appears neatly in annual budgets. The larger fiscal burden comes from the pension promises behind it: guaranteed, inflation-linked income paid for decades, regardless of market performance or demographic change.

And yet, it is private pensions that continue to take the strain.

Against that backdrop, making it harder to save efficiently feels less like prudent reform and more like a slow erosion of trust.

Salary sacrifice is an easy target because it sounds like a perk. Public sector pensions are harder to tackle because they are embedded in pay structures and political expectations. But ease should not be confused with effectiveness.

If the Treasury is serious about long-term sustainability rather than short-term optics, it needs to be honest about where pension costs really lie. Otherwise, we risk continuing to chip away at private pension saving while leaving the biggest pressures on the public finances firmly untouched.