With mixed reactions to reports that the Chancellor, Rachel Reeves, is looking at changes to salary sacrifice as part of her upcoming Budget, concerns over the impact of recent pre-Budget speculation have continued to grow. 

The past weekend saw various pension headlines, with varying rumours surrounding the pension changes that could be seen in the upcoming Budget, as speculation of "tough but necessary" decisions ramped up following Reeves' pre-Budget speech. 
 
This included reports of potential changes to salary sacrifice, which Standard Life retirement savings director, Mike Ambery, suggested could be one of the less impactful changes, particularly given that, "unlike changes to pensions tax-free cash, which has some popular understanding, the inner workings of salary sacrifice are poorly understood".

However, Ambery clarified that while this is one of the least impactful of the changes recently floated, it "undoubtedly still comes at a cost to savers".

"The government is navigating a difficult path while looking to shore up the nation’s finances and, at the same time, running a Pension Commission designed to increase levels of savings," he stated.

This was echoed by Hargreaves Lansdown head of retirement, Helen Morrissey, who said that whilst many will be welcoming the reports that changes to tax-free cash in the Budget are no longer on the table, salary sacrifice changes would still "spell bad news for employers and employees alike".

"Tinkering with the employer National Insurance exemption on pension contributions heaps further pressure on employers at a time when many are already struggling with extra costs such as the increase in minimum wage," she warned.

"There’s every chance we will see them cutting back on potential wage increases in a bid to save costs, and future increases to pension contributions could also be put on the back burner, given they would no longer come with the same NI saving.

"Restricting the amount of someone’s salary that can be sacrificed, without incurring National Insurance payments, to £2,000 a year will also have an enormous impact. If this happened, a worker earning £45,000 who saves 5 per cent of their salary would have to pay £30 more in National Insurance and their employer £34.

"At a time when the government is looking to improve pension adequacy, it seems counterintuitive to do something that could put people off boosting their contributions."

And whilst this is a change that would hit higher earners hardest, Morrissey pointed out that Hargreaves Lansdown's research has shown that higher earners are actually one of the most at risk of not saving enough to enable them to sustain their lifestyle in retirement.

"Only 41.5 per cent of the fifth-highest-earning households are on track for an adequate retirement income, so there is still much to do to boost retirement resilience – barriers should not be put in the way," she stated.

And broader concerns over the impact of pre-Budget speculation, regardless of the content, have also persisted, as Association of British Insurers (ABI) director of long-term savings, Yvonne Braun, warned that "pensions policy must not become a testing ground for short-term revenue raising through stealth taxes".

"Such measures will increase the costs to employers of providing pensions for their workers and risk undoing years of progress on retirement outcomes, all at a time when we already know millions of workers are not saving enough for their retirement," she stated.
 
“Constant speculation about and tinkering with pension policy damages confidence in the entire pension system, fuels confusion and leads to real financial harm where savers act on uncertainty.”

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