Salary sacrifice investigation bit.ly/4khiyZA about time. It is a benefit for middle class professionals to avoid NICs on pension contributions and tax and NICs on buying a bicycle, joining a gym, buying a car or home computer, childcare, store cards, laptops, mobiles etc
— Paul Lewis (@paullewismoney.bsky.social) May 27, 2025 at 8:40 PM
I looked at my Nest statement this weekend, no personal contributions – all comes from the company – AgeWage. I remember now- we opted for salary sacrifice and though I didn’t get a salary or a pension contribution, things are looking up for our enterprise.
Paul was yesterday, today I have a correspondent I rely on too much for payroll/pension issues. She knows more than anyone else and she sees trouble for payroll ahead.
So the next thing in the government sights’ appears to be salary sacrifice for pensions it was an obvious move with the increase in employer’s national insurance that more businesses, particularly SMEs, would be advised to move to salary sacrifice, of course the big guys have sensibly been doing it for years, but it looks like this document provides the support for some very complicated legislative changes to make employer pension contributions subject to employer national insurance (maybe after a de minimis which will also be complex) and potentially (one wonders) to corporation tax relief as well.
Gosh it’s a tough time to be an employer at the moment.
You have to be clever to make a sentence last as long as the first one! She and I are the kind of middle class people who like to avoid paying national insurance.
Here is someone who is too old to pay national insurance but whose brain is in its prime!
Given that Labour has backed itself into a corner on tax etc rates, it is inevitable it is scratching around for other ways to raise money.
HMT has lots of work and ready reckoners available to decision makers and the smart young lads and lasses who prepare briefing etc. Reams of analysis on each metric affecting each source of revenue and also each tax etc allowance.Salary sacrifice has always been an obvious target. And I suspect it could bring more with it, all of which have been around for ages. NI on pensions is such an obvious one. At least at the rate deemed allocated to the NHS. Or could become even wider. A revisiting of the social care contribution.We cannot get away much longer with not paying our way, one way or another. From my personal and friends experience, it seems more health care is privately funded. More social care too.
Here is the article that is causing all the fuss. It’s from the HMRC and the Treasury
HM Revenue and Customs (HMRC) commissioned IFF Research to undertake research to understand the experiences, motivations, and attitudes of employers towards using salary sacrifice arrangements for pensions. The research also explored whether hypothetical changes to tax reliefs (such as reform of NICs relief) on pension salary sacrifice arrangements may impact employers’ motivations and attitudes towards these arrangements.
Between 30 May to 3 August 2023, IFF Research conducted qualitative in-depth interviews with 41 businesses that offered a salary sacrifice arrangement for pension contributions and 10 businesses that did not. Businesses recruited for this research identified the person most suitable to take part in the interview on their pensions and salary sacrifice arrangements. Interviewees were predominantly in HR or finance roles.
The views in this report are the authors’ own and do not necessarily reflect those of HMRC.
So HMRC have sat on this paper since January2024 when NI rates were a lot lower. Here is the conclusion
The research revealed that the main motivation of employers for offering salary sacrifice for pensions was that it was generally seen as beneficial for both the employer and employees due to the NI savings for both parties.
This research found that there was a mixed response as to whether the NI savings resulted in more generous contributions. Most employers included in this research said they did not use the NI savings from the salary sacrifice arrangement to directly fund their workplace pension – the savings were absorbed into general business running costs, where pensions were one such cost. However, some employers said they used the NI savings from the salary sacrifice arrangement to contribute above the Automatic Enrolment minimum, passing these savings on to their employees in the form of higher contributions.
Generally, employers reported finding pensions salary sacrifice easy to explain to their employees. Most employers said they found salary sacrifice pensions easy to administer and manage, once set up. The fact that the employers included in this research had been offering salary sacrifice for pensions for a number of years likely impacted responses in relation to explaining it to employees and the administrative burden of managing it. When responding to questions on the hypothetical scenarios for salary sacrifice, employers commonly mentioned the administrative burden associated with getting to grips with any changes the scenarios could bring.
All the hypothetical scenarios explored in this research were viewed negatively by employers, but the extent to which they led to a reported definitive change in employer behaviour regarding pensions varied. It was common for employers to say they would need to consider the impact the changes would have and look into other options besides salary sacrifice for pensions, highlighting the challenge of asking hypothetical questions in real time. Initial responses and reactions to these questions often indicated some misunderstanding amongst employers of alternatives to salary sacrifice for pensions and pensions more broadly. Larger employers were more likely to not only recognise different pension options that were available, but some already offered multiple pension types, and so would be able to switch with less administrative burden. Contrastingly, smaller employers tended to be unsure of the alternatives available or prepared to consider the option of absorbing additional NI to avoid any administrative burden.
Generally, employers indicated that changing the pension system could inevitably cause confusion and risk people becoming more disengaged with pensions.
The hypothetical alternatives to the current salary/bonus sacrifices are set out in the paper and I won’t set them out here. There is enough in the paper to justify the kind of action my correspondent foresees (having read the paper harder than me),
As David Fairs of LCP says on Linked in , HMRC would not be dragging this out of the cupboard now if there wasn’t a plan to do something about the amount being lost. VFM for the tax-payer? Well if you think like Paul Lewis and most working people the answer is “no”. If you are middle class and spend your time thinking about how to get around paying national insurance then salary/bonus sacrifice is most definitely a “good thing”,
If you were Rachel Reeves would you follow the middle class professionals or the lower class worker?
Is the saving worth the disruption to payroll and annoyance to middle-class professionals?
Salary sacrifice for pension savers could be as divisive as winter fuel payments for pensioners.
