A new £2,000 yearly cap on pension salary sacrifice contributions is prompting many businesses to consider ending their schemes. From April 2029, employees will be limited in how much they can save into their pensions through salary sacrifice, a move that experts warn could worsen the UK's retirement savings crisis.
Employers Reconsider Salary Sacrifice Schemes
Research from the Standard Life Centre for the Future of Retirement reveals that two in five (39%) business leaders currently offering salary or bonus sacrifice schemes are now less likely to continue providing them. This comes as the government introduces a cap that many believe will create additional cost barriers for employers.
Impact on Workers
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, stated: "The UK has a widespread under-saving problem. Current minimum workplace pension auto-enrolment levels are insufficient, with 15 million people currently heading for financial insecurity in retirement." She added that the cap will worsen this crisis by disincentivising employers from offering the scheme, with significant implications for employees' ability to save.
Foot noted that the National Insurance Contributions Bill has received Royal Assent, but an opportunity was missed to consider the effects on employer incentives and extra costs for both employees and employers. According to their analysis, lower earners will be indirectly affected by businesses' responses, while middle and high earners face a "double whammy" of extra costs and higher payroll expenses for employers.
Call for Government Action
Foot urged: "Ideally, Government would have waited to hear the initial evidence from the Pensions Commission, which will soon set out the evidence on the scale and nature of under-saving before pressing ahead with this change."
Gail Izat, Managing Director for Workplace and Retail Intermediary at Standard Life, commented: "Employers want to support their employees to save more and improve their financial prospects in retirement, as evidenced by the significant proportion who currently offer salary sacrifice schemes to their workforces. But businesses are struggling with difficult economic headwinds and increased costs across the board, meaning that further costs or administrative barriers are a huge disincentive to continuing to offer these. They also need further detail on implementing these changes as complex and unclear processes may further discourage them offering salary sacrifice."
Izat concluded: "The changes will likely lead to many employees saving less over the next few decades than they would otherwise, with salary sacrifice currently one of the most straightforward and most effective ways for people to boost their pension."
