Workers’ pensions could shrink by tens of thousands of pounds if the chancellor introduces national insurance on salary sacrifice schemes in next week’s Budget, a survey suggests.
Research by the Confederation of British Industry (CBI) suggests businesses would mostly not be able to absorb the costs if tax liabilities are changed in the Autumn Budget.
Salary sacrifice schemes allow workers to give up a portion of their pay for a different benefit, like pension contributions.
The chancellor is said to be preparing to cap the amount of someone’s salary that can be sacrificed to £2,000 a year. After that, national insurance contributions would be incurred.
But nearly three-quarters of UK firms agreed they would not increase their employer contributions to offset the new liability if such a measure came in. Just 13 per cent of respondents said they would.
With contributions to pension pots smaller as a result, workers could expect to see their monthly pension contributions drop by potentially tens of thousands of pounds per year, according to The Times.
The CBI did not identify respondents to its survey. It was understood they represent a broad picture of different industries.
One business indicated they would have to factor in new costs of nearly £5mn a year if such a measure does come into effect at the budget.
The move could raise as much as £2bn a year for the British economy, and would mainly affect high earners.
Any potential clampdown on salary sacrifice or pensions tax relief in next week’s Budget would risk damaging public confidence in the pensions system and undermining economic growth, organisations representing the pensions industry and businesses are warning.
Pensions UK and the Federation of Small Businesses (FSB) have sent a joint letter to Chancellor Rachel Reeves, urging her not to curb salary sacrifice schemes or wider pensions tax relief.
Ahead of the 26 November Budget, the organisations warned speculation alone over potential changes is already eroding saver confidence, with increases in inquiries from savers and the potential for people making unnecessary early pension withdrawals.
It is also causing uncertainty for schemes and employers, they argued.
Pensions UK and the FSB said many employers rely on salary sacrifice schemes to support staff retention and reward – and higher costs and operational disruption would make it harder to offer competitive benefits, invest in growth, or plan effectively.
Payroll systems would also need adjustment, agreements would have to be revisited, and staff resources diverted, they argued.
The chancellor has warned there will be no “easy choices” on 26 November, after the Institute for Fiscal Studies (IFS) estimated she needs to find at least £22bn to stabilise the public finances.
