UK Salary Sacrifice Cap Analysis

Analysis of a hypothetical UK salary sacrifice pension contribution cap using PolicyEngine.

Overview

This package models the fiscal and distributional impacts of capping salary sacrifice pension contributions, with configurable behavioral assumptions about how employers and employees respond.

Scenario Matrix

The model explores a 2x2 matrix of behavioral responses:

Employer Response (to increased NI costs)

• SPREAD_COST: Spread the additional employer NI cost across all employees (cost-neutral for employer)
• ABSORB_COST: Employer absorbs the full extra NI cost

Employee Response (to excess above cap)

• MAINTAIN_PENSION: Redirect excess to employee pension contributions (maintains total pension saving)
• TAKE_CASH: Take the excess as taxable cash instead (reduces pension saving)

This gives 4 scenarios:

1. Spread + Maintain: Broad haircut, full pension maintained
2. Spread + Take Cash: Broad haircut, lower pension saving
3. Absorb + Maintain: No haircut, full pension maintained (best for employee pension)
4. Absorb + Take Cash: No haircut, max take-home (best for employee cash)

Installation

pip install -e ".[dev]"

Usage

Run the 2x2 scenario matrix

salary-sacrifice matrix --cap 2000 --year 2026

Run a single scenario

salary-sacrifice single --cap 2000 --employer spread --employee maintain

Calculate distributional impact

salary-sacrifice distributional --cap 2000 --year 2026

Development

# Install dev dependencies
pip install -e ".[dev]"

# Run tests
pytest -v

# Format code
black .

License

MIT