Over 90% of employers think that the chancellor will place restrictions on pensions salary sacrifice schemes at the upcoming Autumn Budget, according to a new survey of mid-market businesses.
Conducted by Censuswide for BDO, the survey found that almost half (49%) of C-suite respondents believe restrictions are ‘quite likely’ while 45% consider them ‘very likely’.
Only 6% see an equal chance either way, while less than one per cent think restrictions are unlikely.
The findings follow the publication of an HMRC survey in May 2025, which suggested salary sacrifice pension schemes could be in the chancellor’s sights.
The survey, entitled Understanding the attitudes and behaviours of employers towards salary sacrifice for pensions, explored hypothetical scenarios to gauge employer reactions to potential changes.
In salary sacrifice schemes, employees forgo part of their salary which the employer pays instead into their pension as an enhanced pension contribution. This arrangement offers NIC savings for both employer and employee, as the sacrificed salary and employer contributions are exempt from both income tax and NIC.
HMRC’s study examined three scenarios:
- Scenario one removed the NIC exemption, resulting in employer and employee NIC charges on the salary that the employee sacrificed.
- Scenario two removed both the NIC exemption for employers and employees and the income tax exemption for employees, on the salary sacrificed.
- Scenario three removed the NIC exemption but only on salary sacrificed above a £2,000 per year threshold.
Employers noted that all three scenarios could affect employee morale, but felt scenario three might be more acceptable due to its perceived fairness.
Caroline Harwood, head of employment tax at accountancy and business advisory firm BDO said:
“It’s clear from our survey findings that employers are bracing themselves for reform. Indeed, HMRC’s survey from earlier this year suggested that changes to pensions salary sacrifice schemes are under active consideration.
“Tax reliefs on pensions are costly. The most recent figures show that the cost of NIC tax reliefs from contributions to, and benefits from, registered pension schemes reached £23.5bn in 2023/24. Meanwhile the cost of Income Tax relief for registered pension schemes reached £28.5bn in the same period.
“However, the challenge for the Government is how to restrict relief on pensions without discouraging people from saving enough for their future.
“One approach could be to limit the NIC exemption to say £2,000 to £5,000 of total salary sacrificed for all benefit types.
“One other, perhaps simpler, option, would be to keep the salary sacrifice system as it is but impose a simple levy on pension fund values. This could be done by adding a small percentage to the annual charges. A small levy of say 0.25% would hardly be noticed by pensions savers and could be easily collected by pension fund managers.
“Whatever path the government chooses, some changes to pensions taxation at the Budget look very likely.”
