With around a third of private sector employers offering salary sacrifice arrangements, and many public sector organisations doing so too, they are a well-established and well-functioning feature of the UK pensions landscape.
Salary sacrifice for pensions is where an employee gives up a portion of their salary in return for their employer paying an equivalent amount into their pension as an employee pension contribution.
Recently published research into salary sacrifice, commissioned by HMRC, has led to some speculation that the Government may seek to make savings by abolishing or reforming salary sacrifice. However, the Society of Pension Professionals (SPP) have highlighted that the same research indicates that employers are generally very supportive of the arrangement and believe that changes would cause confusion, reduce benefits to employees, and disincentivise pension savings.
Steve Hitchiner, Chair of the SPP Tax Group, added;
“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.”
