The government has published research commissioned by HMRC, which asked questions about attitudes to salary sacrifice and tested employer reactions to three different ways in which the benefit could be 'hypothetically' cut back.

The fieldwork was undertaken from May to August 2023 and involved interviews with 51 firms, 41 of which offered salary sacrifice and 10 of which did not.

It found that employers were positive about salary sacrifice in the current system and thought it helped to retain employees as part of the overall benefits package.

Some said they passed on the employer's national insurance (NI) savings to their employees, but for others, their firm absorbed it as a reduced employment cost.

Regarding potential changes to the system, the three hypothetical reforms tested were removing the NI exemption for employers and employees, the income tax exemption for employees on salary sacrifice, and the NI exemption, but only on salary sacrificed above a £2,000 per year threshold.

The research concluded employers were most negative about the second option, which involved removing both NI and tax breaks for salary sacrifice.

Some employers said that this would eliminate the benefit of salary sacrifice and were unsure whether they would continue to offer salary sacrifice for pensions in that scenario.

The most favourably viewed reform capped salary sacrifice but allowed for smaller amounts of sacrificed salary.

Generally, employers indicated that changing the pension system could inevitably cause confusion and risk people becoming more disengaged with pensions.

LCP partner, Steve Webb, said that HMRC's commissioning of research to test employer responses to potential changes to salary sacrifice suggested a "significant risk" of cuts in the forthcoming Budget.

"It is very revealing that HMRC has paid for research into the likely response from employers if salary sacrifice for pensions were to be scaled back," he argued.

"Although the research was commissioned under the previous government, the desire to raise additional revenue is, if anything, even more acute today.

"With a Chancellor reportedly looking to make up a multi-billion pound hole in the public finances in her Autumn Budget, this research suggests that changes to salary sacrifice are firmly on the agenda and likely to be considered as a potential revenue-raising measure," he concluded.

Indeed, the changes would come as a blow to many savers, with recent analysis from Penfold revealing that interest in switching to its salary sacrifice pension solution jumped by 800 per cent year-on-year.

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