The Chancellor has been urged to avoid a change to pensions contributions in the November Budget, saying it could lead to Brits losing out on millions.
The Society of Pension Professionals (SPP) has written to all Members of Parliament, warning of the dangers in reducing or removing salary sacrifice arrangements for pension contributions. Salary sacrifice for pensions (also known as salary exchange) is an optional arrangement where an employee gives up a portion of their salary in return for their employer contributing an equivalent amount to their pension. Whilst they are funded by the employee, they are treated as employer pension contributions for income tax and National Insurance purposes. A new paper from the SPP said that research commissioned by HMRC has led to speculation that the Government may seek to make savings by abolishing or reforming salary sacrifice for pension contributions. In the run-up to the Budget on November 26, 2025, such speculation has increased. Around a third of private sector employees utilise salary sacrifice arrangements, and almost 10% of public sector workers do so as well.
The SPP stated that any changes would bring upheaval to a large number of workers, with the removal of the arrangement costing “millions” of employees hundreds of pounds per year.
The SPP explained that whilst there is a £4 billion cost to the Government in providing salary sacrifice arrangements (£1.2 billion for employees and £2.9 billion for employers), there is also “widespread recognition that this is a positive investment that incentivises pension saving”.
The research commissioned and published by HMRC demonstrated that employers are generally very supportive of the arrangement and believe that any changes would cause confusion, reduce benefits to employees, and disincentivise pension savings.
The research presented three potential scenarios for restricting salary sacrifice, with employers indicating that in all three scenarios, employee morale was likely to be negatively affected.
Steve Hitchiner, chair of SPP’s Tax Group, said: “Changing salary sacrifice arrangements would lead to a reduction in take-home pay for millions of employees who are saving into a workplace pension, with the greatest impact for those earning less than £50,284 a year.
“It would also represent another sizeable cost to employers, despite the Chancellor’s public commitment against this, and would undermine the critical role that employers play in supporting and promoting good quality pension saving vehicles.”
