Concerns over the impact of the government's proposed changes to salary sacrifice have continued to grow, after an impact assessment report from HMRC revealed that up 3.3 million workers currently sacrifice more than the £2,000 limit.  

The impact assessment found that around 7.7 million workers currently benefit from salary sacrifice for pensions, and of these, 3.3 million (around 44 per cent) sacrifice more than the £2,000 limit. 

This means 44 per cent of employees using salary sacrifice for pensions would be impacted by this measure, while 56 per cent, around 4.3 million people, are expected too be fully protected by the £2,000 threshold.

Lower earners are expected to be less impacted, as the government previously said that the cap would "shield" 74 per cent of basic rate taxpayers using salary sacrifice, while around 26 per cent would lose out.

Of those with salary sacrifice contributions in excess of the contribution limit, the average additional employee National Insurance contributions (NIC) liability is estimated to be £84 in the first year of impact (tax year 2029 to 2030).

However, HMRC said that this measure is expected to have no impact on an individual’s experience of dealing with HMRC, as the change only affects the processes or tax administration obligations of their employer.

HMRC also included an update on the expected impact for employers, confirming that the measure is set to affect 290,000 employers who operate salary sacrifice arrangements for pension contributions and will now need to account for relevant pension contribution amounts and report and pay NICs on these, where appropriate.

This will require several one-off costs, including familiarisation with the change, the training of staff and the updating of software.

HMRC will also face upfront costs, as it will need to make IT changes to support implementation of this measure, which are expected to cost in the region of £1.9m.

However, industry experts have suggested that the impact on workers could be felt much more widely depending on the action taken by businesses, as LCP partner, Steve Webb, warned that the number of losers could be greater if employers respond to the change by making pension provision less generous for all workers.

“At a time when the nation as a whole has a significant ‘under-saving’ problem, this change will make matters worse," Webb stated.

"On the government’s own estimates, around three in seven of the workers who use salary sacrifice to pay into their pensions will be hit by the change, whilst employers will face a bigger hit because of their higher rate of NICs.    

"Although employers have time between now and 2029 to consider their options, there is a risk that some will simply cut back on the generosity of their workplace pension offering, which would be a serious backward step." 

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