Two in five or 38 per cent of UK workers say they would save less into their pension if the Chancellor introduces a cap on salary sacrifice arrangements in the upcoming Budget, according to research from the ABI and Opinium.
Currently, employees can contribute up to £60,000 a year to their pension through salary sacrifice, receiving tax relief at their income tax rate. Neither employees nor employers pay National Insurance (NI) on these contributions.
The ABI and Opinium findings follow previous research from the ABI and the Reward and Employee Benefits Association (REBA), which found that nearly half of employers paying above the statutory minimum would consider reducing contributions if NI were applied to employer pension payments.
The survey also highlights low confidence among savers, with just one in four or 26 per cent of adults feeling confident about saving for retirement amid speculation about potential reforms, while 46 per cent are not confident that government plans for pensions will positively affect their retirement.
It found that overall, 38 per cent of savers do not feel confident they will achieve their desired standard of living in retirement, rising to 44 per cent among women.
The ABI notes that lower pension contributions could have wider implications for retirement outcomes and the amount of long-term capital available for investment in the UK economy.
ABI director of policy, long-term savings Yvonne Braun says: “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.
“In the government’s own words, ‘we are currently on course for tomorrow’s pensioners to be poorer than today’s’. 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.”
