The Society of Pension Professionals (SPP) has urged MPs to protect salary sacrifice arrangements for pension contributions, warning that reform or removal would reduce take-home pay for millions of workers.
In a letter sent to all 650 Members of Parliament, the SPP highlighted findings from HMRC-commissioned research earlier this year that have fuelled speculation the government may seek to make savings by abolishing or restricting salary sacrifice in the upcoming Budget on 26 November.
The professional body’s accompanying paper, A sacrifice too far?, explains how salary sacrifice works, who uses it and the potential implications of change.
Around one-third of private sector employees and nearly one in ten public sector workers currently use such arrangements, which enable staff to exchange part of their salary for pension contributions, reducing both income tax and national insurance.
The SPP estimates that removing the system would cost millions of employees hundreds of pounds annually.
While the Treasury forgoes about £4bn each year through the policy — £1.2bn in employee savings and £2.9bn for employers — the SPP argues it represents “a positive investment that incentivises pension saving”.
HMRC’s research found strong employer support for maintaining the current structure, with respondents warning that reforms would create confusion, weaken employee benefits and discourage saving for retirement.
Across three possible reform scenarios, employers said morale would likely fall.
Steve Hitchiner, chair of the SPP’s tax group, said: “Changing salary sacrifice arrangements would lead to a reduction in take-home pay for millions of employees saving into workplace pensions, with the greatest impact on those earning under £50,284 a year.
“It would also represent another sizeable cost to employers and would undermine the critical role they play in supporting and promoting good-quality pension saving.”
