Salary sacrifice cap risks complications for those saving for retirement
Plans to cap the amount that can be saved to pensions using salary sacrifice risk complicating the situation for those saving for retirement, says the Association of Taxation Technicians (ATT).
At this week’s Budget,1 the Chancellor announced that national insurance contributions will be payable by both employee and employer on salary sacrifice contributions over £2,000 from April 2029. Salary sacrifice allows an employee gives up a portion of their future salary in exchange for a benefit from their employer, such as a pension contribution.
The ATT has warned that the changes risk complicating the existing salary sacrifice system, including requiring software updates to reflect the new policy, and could affect those saving for retirement.
Jon Stride, chair of the ATT’s Technical Steering Group, said:
“Salary sacrifice is popular because it delivers immediate tax relief and avoids the need for higher-rate taxpayers to claim additional relief later.
“This week’s announcements will significantly increase the complexity of tax on salary sacrifice pension contributions. There remain a number of practical issues to consider, including the impact on employers and HMRC of delivering the changes.
“Savers will now need to consider the impact of NI charges against their levels of contribution, while employers face recalculating benefit packages and possibly renegotiating employee contracts.
There are also questions over how non-traditional employment, such as multiple jobs and non-contractual payments like bonuses, will be treated.
“These changes could have a long-term impact on how individuals save for retirement.”
Notes for editors: