Workers across the UK could see their retirement savings diminish by tens of thousands of pounds if Chancellor Rachel Reeves proceeds with a rumoured tax raid on salary sacrifice schemes in next week's Autumn Budget.
Business Backlash Against Proposed Changes
Research conducted by the Confederation of British Industry reveals that nearly three-quarters of UK firms would not increase their employer contributions to offset new national insurance liabilities if the chancellor imposes them. Only 13 percent of surveyed businesses indicated they would absorb these additional costs.
The proposed changes would see national insurance contributions applied to salary sacrifice arrangements above a £2,000 annual cap. Currently, these schemes allow employees to exchange part of their salary for benefits like enhanced pension contributions, providing tax advantages for both workers and employers.
Economic Impact and Industry Warnings
One major business surveyed by the CBI indicated it would face nearly £5 million in additional annual costs if the measure is implemented. The Treasury could potentially raise up to £2 billion yearly from this change, which would predominantly affect higher earners.
Pensions UK and the Federation of Small Businesses have issued a joint letter to Chancellor Reeves, urging her to reconsider any restrictions on salary sacrifice schemes or wider pensions tax relief. They argue that speculation alone is already damaging public confidence in the pensions system.
The organisations reported increases in inquiries from concerned savers and warned about the potential for unnecessary early pension withdrawals if changes are introduced.
Operational Challenges and Economic Consequences
Business representatives emphasise that many employers rely on salary sacrifice arrangements to support staff retention and reward packages. Higher operational costs and administrative disruption would make it increasingly difficult for companies to offer competitive benefits while continuing to invest in growth.
Implementing the changes would require significant adjustments to payroll systems, revisiting employment agreements, and diverting staff resources from other critical business functions.
The chancellor has previously warned that there will be no "easy choices" in the 26 November Budget, following Institute for Fiscal Studies estimates that she needs to find at least £22 billion to stabilise public finances.
