Businesses warn Budget cap on salary sacrifice pensions would remove "one of the few tools employers have to manage rising costs"

"Businesses and financial experts have sharply criticised a potential clampdown on salary sacrifice pension benefits in the upcoming Budget, warning that the move would amount to a stealth rise in Employer National Insurance and leave companies with even fewer ways to manage rising employment costs. Rumours are circulating that the Chancellor could introduce a dramatic cap on the amount employees can sacrifice into their pensions, with some suggesting the annual allowance could be cut to as little as £2,000. Salary sacrifice agreements allow employees to give up part of their gross pay in exchange for non-cash benefits such as pension contributions."

"While the Treasury is seeking ways to plug a significant fiscal gap, businesses warn that dismantling salary sacrifice would hit firms at a time when wage pressures are already intense. Many fear that if pension sacrifice becomes restricted, electric vehicle salary sacrifice schemes could be next, undermining one of the most effective levers employers have used to boost green transport adoption."

The Chancellor may cap salary sacrifice pension contributions to as little as £2,000, removing pre-tax and pre‑National Insurance benefits for employers and employees. Salary sacrifice reduces both employer and employee NI because contributions are made before tax and NI calculations. Businesses warn that restricting sacrifice would act as a stealth Employer National Insurance increase and further squeeze firms already facing wage pressures and rising employment costs. Employers fear electric vehicle salary sacrifice schemes could be targeted next, weakening a key employer-led green transport incentive. Uncertainty over timing—immediate Budget Day action or a delayed April 2026 start—could prompt firms to rush to finalise arrangements.

Read at Business Matters