Pensions tax relief may be in the firing line in the upcoming Autumn Budget, with growing concern among financial experts that HMRC is targeting popular salary sacrifice schemes as a way to raise revenue.
According to Blick Rothenberg, a leading audit and tax advisory firm, a new HMRC report points to the Treasury’s increasing focus on pension perks — including suggestions that salary sacrifice schemes could be significantly curtailed or even abolished.
Tomm Adams, a partner at the firm, said: “HMRC has just published a report suggesting that the Treasury has pensions in its crosshairs this Autumn. It explores ways to butcher salary sacrifice arrangements, or go even further by abolishing pension tax relief altogether.”
He added that the pensions industry was alarmed by what he described as a short-sighted approach that prioritises short-term tax receipts over long-term financial stability. “Those of us who care about the general population’s retirement prospects are appalled. This would sacrifice tomorrow’s security for today’s gain.”
Salary sacrifice arrangements have long been used by both employers and employees to boost pension contributions in a tax-efficient way. Under the scheme, an employee agrees to reduce their salary, with the equivalent amount instead being paid into their pension — which reduces both income tax and National Insurance contributions (NICs).
“There’s a misconception that this is a personal income tax loophole,” Adams said. “In reality, it offers no more of a break than other methods of making pension contributions. The key difference lies in National Insurance — there’s a 15% employer NIC break, and up to 8% for employees.”
He suggested that in an ideal world, all pension contributions — not just those via salary sacrifice — should receive the same level of NIC relief. “But that would cost the Treasury significantly more, and it’s not on the table under this government,” he added.
Any move to reduce or remove salary sacrifice would have wide-reaching consequences, not just for workers, but also for employers who use the scheme to support staff retention and wellbeing. “Companies often share part of their NIC savings with employees by topping up pension contributions,” Adams said. “That’s particularly important for higher earners, who already receive reduced pension tax relief.”
He also warned that abolishing or weakening salary sacrifice would likely reduce pension contributions across the board — particularly from higher earners — at a time when the UK already falls short on retirement provision. “The state pension provides just 21.7% of the average final salary. Even with auto-enrolment, that only rises to 41.9% — well below the global average.”
Adams argued that the government should look elsewhere for more immediate sources of revenue, such as unfreezing fuel duties, which could add £3 billion annually to Treasury coffers. “Hopefully, this is just the poorly timed publication of an outdated internal report,” he said. “But if not, it would represent a dangerous move against long-term financial planning for millions of workers.”
