Millions more workers could see their wages squeezed under Chancellor Rachel Reeves’ planned overhaul of salary sacrifice pension schemes than previously indicated.

Many companies are likely to respond to the Budget measure by reducing wages across their entire workforce as they seek to absorb higher national insurance costs linked to pension contributions.

The assessment comes following the Office for Budget Responsibility’s (OBR) report published on Thursday.

HM Revenue & Customs (HMRC) previously stated in December that 4.3 million of the 7.7 million people using salary sacrifice schemes would be “fully protected” because national insurance would only apply to pension contributions exceeding £2,000 annually.

The tax authority identified just 3.3 million retirement savers as directly affected by the policy change under its original modelling.

However, the real-world impact could be considerably broader if employers change pay and pension structures across all staff rather than limiting changes to higher contributors.

Employers will pass on approximately 76 per cent of the additional costs arising from the salary sacrifice reforms to employees through reduced wages or slower pay growth.

This so-called pass through effect means workers contributing below the £2,000 threshold could still find themselves financially worse off despite Labour’s assurances that they would remain unaffected by the changes.

The OBR said predicting employer behaviour remains “highly uncertain” and declined to specify how many additional workers could ultimately be affected by company responses to the new rules.

Businesses could respond in several ways, including limiting future pay rises while increasing their own pension contributions in order to remain competitive in recruitment and retention.

Employers are likely to take an “across the workforce” approach when adjusting pay and pension contributions rather than targeting only those directly affected by the tax changes.

Even lower earners who never breach the £2,000 annual threshold could see their wages suppressed as companies attempt to offset increased national insurance liabilities.

Sir Steve Webb, former Liberal Democrat pensions minister and now partner at consultancy LCP, commissioned the OBR to conduct the additional analysis.

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He said: “Far from ordinary workers being ‘protected’ from the changes, we could see millions of people on modest incomes losing out as well, further undermining their incentive to save in a pension.

“This is a huge measure which will cause employers to rethink their pay and pensions policies.”

Sir Steve has called on ministers to provide greater clarity about the true scale of potential losses linked to the policy.

His concerns focus on workers sacrificing less than £2,000 who could experience reduced future pay rises or lower contractual salaries as employers restructure pay and benefits packages in response to the reforms.

The Association of British Insurers has also raised concerns about the policy’s potential wider impact across different income groups and sectors.

Daniel Gallon, head of taxation at the association, said: “The OBR’s analysis shows the impact of the salary sacrifice changes could reach far more people than expected, and it is vital the Government looks closely at how employers and employees across all income levels may feel the effects”.

A joint survey conducted with the Reward and Employee Benefits Association found that 99 per cent of businesses expect to be affected by the cap in some way.

The survey suggested many firms are preparing for increased administrative burdens, reduced benefits and growing pressure on pension contribution levels.

Mr Gallon said: “Continued tinkering with the tax system risks opening the door to a new era of undersaving we cannot afford to ignore”.

The Treasury has defended the policy and said behavioural responses were already included in costings published at the Budget.

A Treasury spokesperson said: “The reforms protect 95 per cent of workers earning under £30,000 who use salary sacrifice, while tackling costs that were set to treble to £8billion as higher earners increasingly used the system to receive bonuses tax free”.