Calls for Chancellor, Rachel Reeves, to avoid making changes to salary sacrifice in her upcoming Budget have continued to grow, with industry research revealing that nearly two-fifths (38 per cent) of Brits will save less into their pension if salary sacrifice is capped.
 
The research from the Association of British Insurers (ABI) comes amid growing speculation that Reeves may target salary sacrifice in her upcoming Budget, with industry experts warning that this could have damaging consequences for pension saving.

Indeed, Evelyn Partners senior partner and retirement specialist, Gary Smith, said that while the changes being rumoured would make "total political sense for the Chancellor", it could really damage not just pension pots but also pay rises, bonus awards, and businesses’ hiring incentives.
 
This was echoed by RSM UK employment tax partner, Andrew Timpson, who warned that the reports that the government could establish employer national insurance contributions on employer pension contributions above £2000 per year could prove "disastrous for the government's pension reform - aimed at boosting workers' pension savings, and would be detrimental to the pensions industry as a whole".

And whilst industry experts have suggested that the changes may prove less troublesome given a lack of understanding amongst the public, the findings from the ABI suggested otherwise, revealing that two-fifths (38 per cent) of Brits will save less into their pension if salary sacrifice is capped.

Given the findings, the ABI urged the government against changes to salary sacrifice, warning that this would result in millions of employees facing a poorer retirement.  
 
The ABI also pointed out that, beyond the risk to savers, lower pension contributions mean less money invested to drive UK economic growth, given that pension firms are among the UK’s largest investors. 

ABI director of policy, long-term savings, Yvonne Braun, said:  “It’s worrying that so many people would cut their pension contributions if the government reduced tax relief in the Budget.

"These findings point to a deeply concerning ‘double whammy’, with almost half of employers saying they’d also lower their contributions if costs rose.

"This isn’t just a problem for lower earners – the government’s own data shows middle and higher earners are most at risk of falling short of an adequate retirement income. 

"The Chancellor must resist short-term tax rises that undermine people’s long-term financial security. With so many people already retiring without enough savings, we should be encouraging saving, not making it harder.” 

Pensions UK executive director of policy and advocacy, Zoe Alexander, shared these concerns, warning that limiting salary sacrifice will hit working people trying to save for a better pension in retirement - including those on lower-than-average earnings for whom every penny counts both in working life and at retirement.

"The result will be less money flowing into pensions in the same year the government has set up a Pensions Commission to address adequacy," she continued.

"And employers will be hit too, costs that could be passed on in the form of lower pay rises at a time when the government is trying to stimulate growth.”

There are ways the government could look to mitigate this impact, however, as Timpson said that one way to reduce the detrimental impact of this approach would be to exempt National Minimum Wage (NMW) compliance for pension salary sacrifice purposes.

"This would allow many of the lowest-paid workers to finally benefit from this arrangement. There have been many years of lobbying on this matter, and it appears now could be the ideal time for the government to support millions of working people by implementing this exemption, creating a fairer system which could benefit all employees," he continued.

Concerns over the broader impact of pre-Budget speculation have also persisted, however, as the ABI's research found that just over a quarter (26 per cent) of adults feel confident about saving for retirement amid speculation about potential reforms, and nearly half (46 per cent) aren’t confident government plans for pensions will positively impact their retirement. 

This comes after research from Nucleus revealed that retirement confidence amongst UK adults has fallen to a record low ahead of the Autumn Budget.
 
“In the government’s own words, ‘we are currently on course for tomorrow’s pensioners to be poorer than today’s’," Braun said.

"The constant speculation about changes to pensions tax is eroding trust in the pensions system and risks making a bad situation worse. Instead, we need clear, consistent government policy that gives people confidence to plan for the future – so pensions deliver on their core purpose: providing financial security in later life.” 

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