The UK government’s recent publication, “Understanding the Attitudes and Behaviours of Employers Towards Salary Sacrifice for Pensions,” sheds light on employers’ perspectives regarding salary sacrifice schemes for pensions. Conducted by IFF Research for HM Revenue and Customs (HMRC), the study involved 51 firms, 41 of which offered salary sacrifice arrangements. The research aimed to explore motivations for offering such schemes, their impact, and potential reactions to hypothetical policy changes.
Employers highlighted several benefits of salary sacrifice schemes, including increased pension contributions for employees and reduced National Insurance (NI) liabilities for both parties. Some firms passed on employer NI savings to employees, enhancing the attractiveness of these arrangements. However, the study also revealed concerns about potential policy changes. Employers expressed apprehension that altering the tax advantages of salary sacrifice could diminish its appeal, potentially leading to decreased employee engagement with pension savings.
In parallel, discussions have emerged about possible tax reforms in the upcoming Autumn Budget. Reports suggest that HMRC is considering changes to the tax treatment of salary sacrifice schemes, including the removal of NI exemptions for both employers and employees. Such changes could reduce the financial incentives for both parties, potentially impacting the uptake of these schemes.
The potential reforms come at a time when the government is seeking to address a significant fiscal deficit. Chancellor Rachel Reeves has indicated that tax increases may be necessary to balance the budget, with salary sacrifice schemes identified as a possible area for revenue generation.
At EBCam we have concerns about the implications of such reforms, scaling back salary sacrifice could undermine efforts to encourage retirement savings. We believe that it is vitally important to maintain incentives which promote long-term financial planning among employees. There was speculation before last years budget that Employer NI would be charged on employer pension contributions clearly this will be back on the agenda in the coming months.
As the Autumn Budget approaches, stakeholders await clarity on the government’s position regarding salary sacrifice schemes. Any changes to the tax treatment of these arrangements could have significant implications for employers and employees alike, potentially reshaping the landscape of workplace pension contributions. Following the employer NI increases last year such changes would continue to increase the tax burden on employers and ultimately reduce employees’ pension savings.
For now, employers and employees need to stay informed about potential policy shifts and consider the impact of any changes on their pension planning strategies. At EBCam we will keep this under review and help our clients when we know the facts following the Autumn Budget.