Almost two in five (39%) business leaders who currently offer salary or bonus sacrifice schemes say they are less likely to provide the scheme in future because of policy changes announced in the last Autumn Statement, according to the Standard Life Centre for the Future of Retirement.
From April 2029, the salary sacrifice cap will be set at £2,000 for National Insurance contributions. This means that only the first £2,000 of employee pension contributions made through salary sacrifice will be exempt from National Insurance contributions. Any contributions above this amount will be subject to employer and employee National Insurance charges.
According to the research, nearly two thirds (65%) of employers currently offer either salary sacrifice or bonus sacrifice schemes, with a third (32%) offering both.
However, the research found that the changes are likely to have a significant impact on employee pension saving. More than one in 10 (11%) employers whose organisations currently offer salary sacrifice say they have already decided to withdraw the scheme completely.
Leaders of small businesses were most likely to say that a tax-free cap on salary sacrifice schemes would impact them, with 49% admitting they would be less likely to offer the scheme in the future.
The survey supports a new research report from the Standard Life Centre for the Future of Retirement, which explores employer attitudes to options for enhancing employee pension provision.
The report recommends that the Government review its decision to introduce changes to salary sacrifice arrangements as it may harm efforts to boost employee saving above minimum levels.
The think tank pointed to the widespread issue of under-saving, with 15 million people currently heading for financial insecurity in retirement.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said: “The cap on salary sacrifice schemes will end up worsening this crisis by creating additional cost barriers that disincentivise employers from offering the scheme, with significant implications for their employees’ ability to save.
“Our analysis finds that a lower earner is most likely to be affected not directly, but indirectly by the knock-on consequences that this has for businesses, while middle and high earners will have a double whammy – impacted by extra costs themselves, along with high payroll costs for the employer.
“Ideally, government would have waited to hear the initial evidence from the Pensions Commission, which will soon set out the evidence on the scale and nature of under-saving before pressing ahead with this change.”
Gail Izat, managing director for workplace and retail intermediary at Standard Life, added: “Businesses are struggling with difficult economic headwinds and increased costs across the board, meaning that further costs or administrative barriers are a huge disincentive to continuing to offer these. They also need further detail on implementing these changes as complex and unclear processes may further discourage them offering salary sacrifice.
“The changes will likely lead to many employees saving less over the next few decades than they would otherwise, with salary sacrifice currently one of the most straightforward and most effective ways for people to boost their pension.”
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