Forecasts for 2024/25 suggest this will dip slightly to £22.1 billion however the Autumn Budget’s announcement that the level of pension contributions made through salary sacrifice that are exempt from NICs will be reduced to £2,000 could drive a spike in tax savings as employees look to maximise tax-efficient savings before this policy kicks in.
Damon Hopkins, Head of DC Workplace Savings at Broadstone, commented: “HMRC’s data demonstrates the significant financial incentives that the Government has created to stimulate pension saving and encourage employers to support their workers’ long-term financial security. The benefits from these NI reliefs have increased of late as wage growth and the impacts of auto-enrolment drive a growing number of savers to contribute more into their pensions.
“The elephant in the room, however, is the potential impact of the changes to pension salary sacrifice from April 2029. Before the change kicks in from 2029, we may see a spike in both the number of employees using salary sacrifice and the total value of contributions made through these arrangements in order to capitalise on the NI advantages before they are curtailed, increasing the total cost of pension tax reliefs.
“The question will then be whether we see a decline in the value of tax relief if workers cut back on pension saving in light of continued financial pressures on households and whether employers reduce the generosity of existing schemes to offset the cost of reduced savings employers receive via pension salary sacrifice. It is absolutely vital that both businesses and savers are taking stock of the current situation and preparing for the longer-term, putting in place plans that will help them achieve long-term security.
“It’s equally vital that the Government continues to incentivise savings and, while this may come at a cost in the short-term, initiatives to minimise that fiscal cost in the short-medium term could have detrimental consequences in the long-term, particularly given that, on average, most people aren’t saving enough as it is.’’
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