Pension relief could be on the shooting line in the upcoming fall budget, with financial experts growing concerns about HMRC using the popular salary sacrifice program as a way to boost income.
According to Blick Rothenberg, a leading audit and tax consulting firm, a new HMRC report points out that the Treasury’s increasing emphasis on pension allowances, including the suggestion that the sacrifice of wages and sacrifice programs can be greatly reduced or even repealed.
“HMRC just published a report that shows that this fall, the Treasury Department has pensions for pensions. It explores ways to slaughter wage sacrifice arrangements, or by abolishing pension tax breaks altogether,” said Tomm Adams, a partner at the company.
He added that the pension industry was shocked by what he called a way in which short-term tax revenues took priority over long-term financial stability. “Those of us who care about the prospects for retirement in ordinary people are shocked. This will sacrifice tomorrow’s safety for what we have today.”
Employers and employees have long used salary sacrifice arrangements to increase pension contributions in a tax-effective manner. Under the plan, an employee agrees to lower their wages, while the same amount is the pension paid to them – which reduces income tax and National Insurance Contributions (NICs).
“Someone misunderstood this is a personal income tax loophole,” Adams said. “In fact, it doesn’t have more rest time than other methods of pension contributions. The key is state insurance – 15% of employers have an employer’s rest time and up to 8% of employees.”
He suggests that in an ideal world, all pension contributions (not just pensions sacrificed through salary) should receive the same level of NIC relief. He added: “But this will cost the Treasury more and not on the table under the leadership of this government.”
Any move to reduce or eliminate the sacrifice of salary will have broad consequences not only for workers, but for employers who use the program to support employee retention and well-being. “Companies often share a portion of their NIC savings with their employees by giving up their pensions,” Adams said. “This is especially important for senior earners who have already lowered their pension relief.”
He also warned that eliminating or weakening wage sacrifices could reduce pension contributions across the board, especially from high-income earners, when the UK is no longer inadequate in retirement regulations. “The state pension provides only 21.7% of the average final salary. Even with automatic registration, this rose to just 41.9%, which is well below the global average.”
Adams believes that the government should look elsewhere for more direct sources of income, such as the Mireya fuel tax, which could add £3 billion to the Treasury vault each year. “Hopefully this is just a timely release of outdated internal reports,” he said. “But if not, it would represent a dangerous move toward long-term financial planning targeting millions of workers.”
