Fiscal drag has prompted one in six (16%) people to hesitate or refuse a pay rise, bonus or promotion due to tax concerns, according to new research from Standard Life.
New research from Standard Life has shown the extent of concern that employees feel about higher taxes or lost allowances potentially reducing the financial benefit.
Over a fifth (21%) say paying a higher rate of income tax could make them consider turning down a pay rise, while 7% cite the risk of losing other financial support or allowances and 5% point to losing childcare support.
Standard Life said younger workers are particularly cautious, with almost three in 10 (28%) Gen Z saying they have hesitated over or refused a pay increase, compared with 19% of millennials, 10% of Gen X and just 3% of Baby Boomers.
Parents with children under 18 are also more likely to hesitate, at 22% compared with 14% of non-parents. Almost one in 10 parents (9%) say losing childcare support could make them turn down a pay increase, versus 4% of non-parents.
Pension contributions can reduce adjusted net income and may help to reduce the impact of key income thresholds, but the research found awareness of this is low. Less than half (48%) knew increasing pension contributions can help reduce the amount of income tax some people pay, while 37% were unaware and 15% believe this is false.
Five years after the tax freeze was announced, Standard Life’s analysis reveals the personal allowance would stand at £16,072 in 2026/27 had it kept pace with inflation, some £3,502 above its current level.
Neil Jones, tax and estate planning specialist at Standard Life, said: “A pay rise, promotion or bonus should be something to celebrate, so it’s concerning that some people are thinking twice because they’re worried they could end up worse off.
“It’s understandable that people want to protect valuable allowances and manage how much tax they pay, but turning down additional income without fully understanding your options could mean missing out unnecessarily.
“The findings also highlight a knowledge gap around pensions, with less than half aware that increasing contributions can help reduce the amount of income tax some people pay. For those approaching certain income thresholds, paying more into a pension may, depending on their circumstances, help reduce the tax impact while also putting more aside for retirement.”
Jones warned that with changes to salary sacrifice due from April 2029, one of the tools some employees currently use to increase pension saving and improve tax efficiency could become less effective.
“That may reduce the options available to help offset the impact of a pay rise or bonus through pension contributions, making it even more important that people understand the options available before deciding whether turning down additional income is the right choice for them,” he added.
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