Changes to salary sacrifice arrangements could lead to a reduction in take-home pay for "millions of employees”, the Society of Pension Professionals (SPP) has warned, urging MPs against changes in this area.

The SPP noted that the research into salary sacrifice, commissioned and published by HMRC earlier this year, has led to some speculation that the government may seek to make savings by abolishing or reforming salary sacrifice for pension contributions.

However, the SPP pointed out that around a third of private sector employees make use of salary sacrifice arrangements, and almost 10 per cent of public sector workers do so too, meaning that any changes will bring upheaval to a large number of workers with the removal of the arrangement costing millions of employees hundreds of pounds a year.

In addition to this, although the SPP acknowledged that there is a £4bn cost to the government in providing salary sacrifice arrangements (£1.2bn for employees and £2.9bn for employers), it argued that there is also “widespread recognition that this is a positive investment that incentivises pension saving”.

Indeed, the government's own research, shared by HMRC earlier this year, 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 also found that all three potential scenarios for restricting salary sacrifice modelled would likely have a negative impact, with employers flagging that in all 3 scenarios, employee morale was likely to be badly affected.

Given this, the SPP has written to all 650 MPs warning of the dangers in reducing or removing salary sacrifice arrangements for pension contributions.

SPP tax group chair, Steve Hitchiner, 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.”

Aptia head of pensions technical and co-author of the report, John Wilson, agreed, arguing that "salary sacrifice is one of the most effective ways for employees to boost their pension savings without reducing their take-home pay".

"It’s a win-win - helping people save for their retirement while making the most of available tax and NI efficiencies," he continued.

"This paper highlights the serious repercussions that any changes to salary sacrifice in the upcoming Budget could have, including reduced take-home pay for millions of employees and a significant cost burden for employers. It’s a timely and important warning that the Chancellor cannot afford to ignore."

This sentiment was also echoed by Barnett Waddingham partner, Martin Willis, who argued that while changes to salary sacrifice could help the government recover national insurance revenue, in practice it would be "highly disruptive, complex, and introduce additional cost pressures for employers".

“The underlying message is that continual shifts in tax and National Insurance frameworks risk making pensions more complicated and undermining saving incentives at a time when pension adequacy is already under strain," he warned.

"If not handled carefully, we risk a lose-lose scenario where employers and employees are discouraged from contributing. Policymakers should think very carefully before pursuing reforms that make it harder for ordinary workers to save for retirement.”

In the meantime, Wilson also stressed the need to avoid further speculation around potential changes, warning that "any speculation about changes to pension taxation risks worries among pension savers and weakens faith in pensions as a way to save for retirement".

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