Could salary sacrifice pension schemes be facing unexpected changes?
As the Budget approaches, it is not unusual for speculation and leaks to come out in the news, but the one which has got the attention of the CIPP team the most is discussions around salary sacrifice pension schemes. The speculation is around changing the National Insurance (NI) savings on pension contributions for salary sacrifice schemes, meaning only £2,000 of pension contributions would be eligible for NI exemption.
We must stress this is merely speculation, which we wouldn’t normally cover in our News articles, but this is such a significant story, we felt we had to share it with you, and show what steps we are taking to represent the profession.
Salary sacrifice pension schemes play a crucial role in helping workers save efficiently for their retirement. By allowing employees to contribute to their workplace pension, these schemes reduce their Income Tax and NI liabilities on those contributions. This not only benefits employees by promoting long-term savings but also provides advantages to employers by saving on employer NI contributions.
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It is essential to note that pension contributions were intentionally exempt from the Optional Remuneration Arrangements (OpRA) legislation introduced in 2017 to encourage and support long-term savings. The UK government has historically supported pension contributions through tax relief to enhance financial security in retirement.
If the speculated changes come into effect, it could not only escalate administrative burdens and increase employers' NI contributions but also discourage workers from actively saving for their retirement.
The CIPP policy team has urged the Government to engage in constructive dialogue before the upcoming Budget on 26 November. It is imperative to address the potentially significant detrimental impact that altering salary sacrifice pension schemes could have on employers, pension savers, and the broader economy.
We will keep you posted on any updates we receive and will find out on 26 November if these plans will come to light.
