Lou Davey Head of Policy and External Affairs at the Independent Governance Group (IGG) comments: By capping salary sacrifice the Chancellor has pulled the rug out from under one of the most effective and widely used ways for many savers to boost their pension pot, undermining the Pension Commission's work and the Government's own commitment to pension adequacy. The clear message from industry ahead of the Budget was to give us stability to not risk undermining saver confidence. The Government has a clear desire for the pensions sector to help drive growth, but this move is counterintuitive by limiting the ability of pension funds to invest in UK assets and encouraging savers to make decisions they might regret in retirement."
Tess Page, UK Wealth Strategy Leader at Mercer said: “At a time when the UK savings gap is growing, restricting pension salary sacrifice schemes is likely to reduce employees’ pension pots and weaken their financial security in later life. Additionally, the timescale for implementation will create further uncertainty. Employers would face increased National Insurance costs and greater administrative burdens, making it more challenging to offer competitive pension benefits and potentially hinder the ability to attract and retain talent, and reduce workforce morale and productivity. The Government should carefully consider the long-term individual and societal consequences of these changes, especially in the context of the ongoing Pensions Commission. Unless retirement saving incentives remain effective and employers can continue to support their employees’ long-term financial wellbeing, the state will end up shouldering an even greater burden.”
Steve Hitchiner, Chair of the Tax Group at the Society of Pensions Professionals (SPP) said: “Restricting salary sacrifice for pensions will affect the take home pay of millions of employees – especially basic rate taxpayers – and is a tax on working people, in spirit if not in name. It is also another sizeable cost to employers and, perhaps most importantly its restriction will reduce pension saving.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Salary sacrifice on pension contributions enables workers to get the full value of every pound through income tax and National Insurance savings. Restricting the amount of someone’s salary that can be sacrificed to £2,000 a year will make people feel that bit poorer and we could see less going into pensions as a result. As an example, a worker earning £50,000 who saves 5% of their salary would miss out on savings of £40 per year. At a time when the government is looking to improve pension adequacy it seems counter intuitive to do something that could put people off boosting their contributions. The cost to employers could also be substantial at £75 per year for someone earning £50,000 and £450 for someone earning £100,000. Multiply this across a workforce and the costs mount up quickly. It could lead to employers limiting salary increases or opting against increasing their own contributions beyond auto-enrolment minimums. It’s a move that could have huge impacts on people’s retirements. A 22-year-old earning £25,000 per year receiving 3% per year as an employer contribution on top of their own 5% one would reach retirement with a pension pot of £226,000. However, if the employer had been able to boost their contribution to 5% the end result would be closer to £283,000. At a time when there is such a focus on pension adequacy it seems counter intuitive to put barriers in the way to boosting contributions. Given the latest data from the HL Savings and Resilience Barometer shows only 43% of households are on track for an adequate retirement income we’ve clearly got more to do. The ongoing pension adequacy review needs to ensure that the appropriate incentives are in place to help people invest for their future and this change is a backward step.With the changes not due to come in until April 2029 there’s still time to take advantage of the system as it currently stands to make contributions to your pension under salary sacrifice and take advantage of the National Insurance savings.”
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