Salary sacrifice reforms face overwhelming opposition from REBA members
If the government were to introduce a £2,000 threshold on salary sacrifice for pension contributions, 31% of businesses would reduce their contributions to an employee’s pension, and 45% would reduce other employee benefits and services.
REBA surveyed business decision makers representing over 1.5 million employees about their likely reaction to a Budget announcement capping salary sacrifice for pension contributions.
Together REBA and the Association of British Insurers (ABI) are warning the government that this would place additional strain on businesses and push millions of people into poorer retirements.
Debi O’Donovan, co-founder and director, REBA said: “If salary sacrifice is capped to £2,000, National Insurance contribution relief is reduced - NICs relief that is frequently used to support and encourage workplace pensions saving. Anything that undermines employees saving adequately for their future needs to be stopped.”
Employers currently do not pay NI on contributions to their workers’ pensions, which incentivises them to provide for their employees’ long-term savings.
The change could mean both employee and employer National Insurance (NI) contributions would be due on any pension contributions above £2,000.
An overwhelming 99% of businesses said their organisation would be affected by the cap, with 70% saying it would increase their administrative burden.
A third (34%) of businesses expect the change would make it difficult for them to attract and retain talent.
With earlier ABI research finding 38% of savers would contribute less to their pension if a salary sacrifice cap were introduced, the policy threatens a double hit to pension savers, with lower employer support and reduced personal saving.
Yvonne Braun, director of policy, long-term savings, ABI said: “These types of short-term revenue raisers put the long-term security of people’s futures at risk. In the
government’s own words, ‘we are currently on course for tomorrow’s pensioners to be poorer than today’s’.
“In this fragile situation, we should be seeing measures which encourage saving, rather than the opposite.”
