A fifth of businesses expect the planned changes to salary sacrifice for pension contributions to have a “major impact” on how they manage retirement saving arrangements, according to Hymans Robertson.
The consultancy group polled its corporate clients and found just 7% of them felt the changes to salary sacrifice would have “minimal or no impact”.
Almost a third of respondents said they currently pass national insurance savings on to pension savers, but 13% of employers believe they will have to review their contribution structures in light of the Budget.
“For many the financial implications could be substantial. This requires employers to plan carefully and consider a range of strategies.”
Hannah English, Hymans Robertson
Hannah English, head of defined contribution (DC) corporate consulting at Hymans Robertson, said: “The changes to salary sacrifice arrangements announced by the chancellor mean employers must start considering their options to ensure cost effectiveness and positive employee outcomes.
“While some organisations may experience only a modest impact, for many the financial implications could be substantial. This requires employers to plan carefully and consider a range of strategies.”
English urged employers not to rush into making changes, as they have “a window of opportunity” between now and 2029 to consider options and engage with staff. A “thoughtful, strategic approach” was important as firms sought to balance costs, compliance, and member outcomes, she added.
Contrasting impact assessments
It comes as the government laid legislation in parliament this week to put the salary sacrifice cap into law, despite the chancellor stating that it would not be enforced until 2029.
The Budget report estimated that around 26% of basic-rate taxpayers would lose out from the change. The government’s explanatory document, published alongside the new bill this week, further stated: “Most employees and their employers who make typical pensions contributions via salary sacrifice will be unaffected.”
“At a time when the nation as a whole has a significant ‘under-saving’ problem, this change will make matters worse.”
Steve Webb, LCP
However, this contrasts with an impact assessment published by the government earlier this month, which indicated that around 3.3 million people sacrifice more than the proposed £2,000 cap – approximately 42% of all those currently using salary sacrifice arrangements.
Steve Webb, partner at LCP and former pensions minister, said: “A Budget measure that was largely seen as complex and technical could have significant real-world implications for millions of workers. At a time when the nation as a whole has a significant ‘under-saving’ problem, this change will make matters worse…
“Although employers have time between now and 2029 to consider their options, there is a risk that some will simply cut back on the generosity of their workplace pension offering, which would be a serious backward step.”
‘Clarity and stability’ needed
Consumer research published this week by Standard Life found that some savers were already nervous about the potential impact of the salary sacrifice changes.
It reported that 18% of consumers polled were “very concerned” about the changes, saying they have less incentive to save. This figure rose to 33% among those earning above £70,000, with many worried about the effect of any future promotions or pay rises.
“Pensions are for the long-term, and any future reform should give people more certainty about their future, not less.”
Mike Ambery, Standard Life
Mike Ambery, retirement savings director at Standard Life, said: “Salary sacrifice has been one of the most reliable tools for helping people make every pound of their savings go further. Changing it now risks making saving feel harder at a time when most people are already under-saving for retirement.
“Combine that with frozen tax bands quietly pushing more people into higher rates of tax, and the sense of financial pressure only grows. If the system becomes more complicated and less rewarding, people may lose trust in pensions – which is a risk none of us can afford.
“This is a moment for clarity and stability. Pensions are for the long-term, and any future reform should give people more certainty about their future, not less.”
