Pension salary sacrifice and the impact of tax changes

The publication of government research undertaken by HMRC around changes to workplace pensions has caused a stir, with the suggestion that the salary sacrifice scheme used by many working people in the UK might be set for an overhaul.

- KARL MATCHETT

This research questioned how businesses felt about prospective changes that would see pension contributions subject to income tax and national insurance payments, resulting in an annual cost of up to £560 for employees and £241 for employers, based on an average £35,000 salary.

Presently, most workers are auto-enrolled into saving for their pension, though there are different thresholds, methods and benefits around this. The principal attraction here is that the money is taken from salaries to go into pensions pre-tax, giving relief to the rate of each person's tax band.

HMRC's survey of more than 50 companies, commissioned under the previous government but only released now by HMRC, shows that most view the proposals for change negatively though the Treasury has dismissed suggestions of impending alterations as "totally speculative" and said all areas of tax are "regularly" subject to research.

"This is a private HM Revenue & Customs consultation initiated in 2023 and it's far from certain that the Treasury has any intentions around salary sacrifice, but it's not the first time that it has come under the spotlight as a potential area for shoring up the tax take," Gary Smith, financial planning partner at Evelyn Partners, explained to The Independent.

Difference between DB and DC