Might salary sacrifice on pensions be reviewed or stopped? After 20+ years of existence for some, is their time up?
1️⃣The UK Government has commissioned external research and published a report on why many employers set up salary sacrifice arrangements for pensions and to understand likely reaction if salary sacrifice was stopped or modified. See link in comments.
2️⃣ Not surprisingly most said they set these up to benefit from National Insurance (NI) savings. Some used the savings to improve overall pensions offer; others to help general business cash flow.
3️⃣ According to the report, 30% of private sector and 9% of public sector employees used a salary sacrifice arrangement for their pension contributions. This is lower what I thought but this may reflect the small sample size and high proportion of small employers in the survey. Of the 51 companies interviewed, only 16 had more than 250 employees.
4️⃣This survey is not representative of large UK plcs. However it also highlights that far fewer small businesses, especially those with under 50 employees, use salary sacrifice – so an example where the admin hassles outweigh the savings.
If salary sacrifice for pensions is stopped, then it is clear some employers and employees will see an increase in costs. Some pension contributions could be reduced.
Employers also provide salary sacrifice for other benefits benefits such as company cars, childcare vouchers and Cycle to Work schemes. There is no mention of any potential changes to these other arrangements.
However if there is a tax benefit only being utilised by 30% of employers then this may give good reason to stop or change it. The government may feel that this too low a figure to keep it going. This may also be a change that won’t hit small businesses as much as big businesses, and so potentially more welcome by the smaller ones (who have been hit hard by other recent changes to NI).
A debate on what will happen to salary sacrifice will surely take off.