The Society of Pension Professionals (SPP) has warned against potential changes to salary sacrifice arrangements for pensions, saying reforms would disproportionately harm low and moderate earners and reduce overall pension saving.
Recent research commissioned by HM Revenue & Customs (HMRC) has sparked speculation that the government may be considering reforming or abolishing salary sacrifice as a way to reduce public spending. But the SPP points out that the research also shows strong employer support for the current system.
SPP says: “The research highlights that employers believe changes to salary sacrifice would cause confusion, reduce benefits to employees, and discourage pension saving.”
SPP says that salary sacrifice is a widely used feature of the UK pensions landscape, with around a third of private sector employers and many public sector organisations offering it. Under these arrangements, employees agree to reduce their salary in exchange for their employer making an equivalent pension contribution on their behalf.
The SPP’s warning adds to ongoing discussions about the future of salary sacrifice ahead of potential government decisions in upcoming fiscal announcements.
SPP Tax Group chair Steve Hitchiner says: “Changing salary sacrifice arrangements would see the extra tax burden hit members and their savings very selectively. Many in non-contributory schemes, or schemes where employer contributions start from a higher base, would be better off, whereas those who receive a lower employer contribution and seek to remedy that with a salary sacrifice would be worse off. More often than not, those whose employer contributions start at a lower amount will be moderate and low earners.
“Given the reaction to previous national insurance increases, which is what any changes would amount to, the impact on moderate and low earners, and the likely reduction in pension saving, it is clear that policymakers now have a variety of compelling reasons to leave salary sacrifice arrangements as they are.”
