Reeves Eyes Pensions as AI Shakes Up Jobs

The government is considering limits on pension salary sacrifices, tech giants are cutting thousands of jobs as AI reshapes their workforces, and the EU is rethinking its strict AI rules to stay competitive. Each of these changes affects ordinary people, from take-home pay and job security to the pace of innovation.

The Treasury is reportedly preparing to cap the amount of salary employees can redirect into their pension via salary-sacrifice before paying National Insurance. Under the plan, contributions above £2,000 a year would lose their NI exemption, a move expected to raise around £2 billion for the government.

Critics say the current system deepens inequality and strains public finances. It’s this that has driven much of the government’s focus on pension reform, including the new limits on salary sacrifice schemes. The changes aim to claw back revenue and make the system fairer, though they risk discouraging workers from saving at all.

Salary-sacrifice has long been a perk of the system where employees reduce taxable income and both sides save on NI. For working people who contribute heavily to their pension, the savings can reach hundreds of pounds a year. Reeves’ proposal would trim that benefit and likely increase NI bills for both workers and employers. Analysts warn this could reduce the incentive to save for retirement, at a time when many people are already under-saving.

Younger and middle-aged workers, who already struggle to balance pensions with high living costs, will be affected heavily. This £2,000-a-year cap could restrict their ability to build retirement savings for much of their careers, leaving them with less to invest in a time when inflation is steadily eroding the value of money.

While the change seems technical, it marks a broader shift in fiscal thinking, prioritising short-term revenue over long-term saving incentives. For a government seeking funds ahead of the Budget, it’s an easy win. But for workers planning retirement decades away, it could prove an expensive one.

In recent months, Amazon, Google, and Meta have all announced new waves of redundancies, alongside consultancies and finance firms reshaping teams around automation. In the UK, technology-related layoffs are estimated to have affected over 30,000 roles since 2023, according to Layoffs.fyi and media tallies. Research from the Tony Blair Institute estimates automation could replace or transform the equivalent of six million UK roles in coming years.

While these technologies offer potential productivity gains, the near-term effect is disruption. Some jobs, especially routine middle-skill roles, are being pared back or re-engineered. For instance, entry-level roles on job boards have fallen significantly, hinting at firms investing less in fresh cohorts and more in technology-enabled staff.

This isn’t purely a tech-sector story. Back-office staff, marketing analysts, and junior consultants are increasingly exposed. Companies are discovering they can maintain output with leaner teams, but that also means weaker job security, fewer entry-level openings, and lower wage growth.

For many, AI feels less like a revolution and more like an erosion of their roles. The upside, of course, is productivity with smarter tools and faster processes. But as firms optimise, policymakers will face the challenge of retraining workers and rebuilding confidence before technology outpaces the labour market itself.

Across the Channel, the EU Artificial Intelligence Act (AI Act), once touted as a tough regulatory framework for AI, is reportedly losing some of its edge under pressure from major tech firms and international trade concerns. The European Commission is said to be considering delaying or pausing key portions of the law, notably those controlling high-risk models and transparency obligations.

The reason is competitiveness. European officials are increasingly wary that overly strict rules could choke innovation and drive AI investment abroad. Industry voices argue that without flexibility, Europe risks falling further behind the US and China.

This recalibration highlights the EU’s dilemma. How to stay a global leader in innovation and AI development while maintaining its tradition of consumer protection and ethical oversight. For now, the direction seems to favour growth and compliance rather than immediate crackdowns. A benefit for UK firms is the lighter rules reduce one barrier for cross-border tech investment.

How governments regulate disruptive technologies is becoming as economically important as how governments tax or spend.

Salary Sacrifice – The scheme where a worker can trade part of their salary for increased pension contributions from their employer. The worker earns less income and therefore has a lower tax liability, and the employer pays less income thus, has a lower NI liability.

Marginal Tax Relief – The marginal tax rate is the rate you pay on your next pound of income. So, a higher earner paying 40% income tax gets 40p of relief for every £1 they put towards their pension, while someone on a 20% rate gets just 20p.

AI Regulation – These are to ensure there are strict requirements for transparency and data use among large tech firms. But as the US and China push ahead with fewer restrictions, regions like the EU risk lagging behind in the race to innovate due to greater red tape.

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