More than 90 percent of employers believe the chancellor will restrict pension salary sacrifice schemes in next month’s Autumn Budget, research has revealed.
A survey of 505 C-suite executives in mid-market businesses found that almost half (49 percent) think restrictions are ‘quite likely’, while 45 percent see them as ‘very likely’. Only 6 percent believe the chances are evenly balanced, and less than 1 percent think restrictions unlikely.
The research, conducted by Censuswide on behalf of accountancy and business advisory firm BDO, follows a survey published by HMRC in May 2025 that looked at employers attitudes and behaviours toward salary sacrifice for pensions. It explored hypothetical scenarios to gauge employer reactions to potential changes, which suggested the treasury may be considering curbs on the tax-efficient arrangements.
The prospect of reform raises potential challenges in workforce communication, as any cutback in pension-related tax reliefs could hit pension engagement.
Salary sacrifice schemes let employees swap part of their gross pay for a non-cash benefit, such as pension contributions, cycle-to-work schemes, or an electric vehicle lease. This money is deducted before tax and national insurance are applied so both the employee and the employer save on tax.
For employees, it means they can often access benefits more cheaply than if they paid from net pay, while employers reduce their NI bill.
The trade-off is that contractual salary is technically reduced, which can affect things like statutory maternity or paternity pay, mortgage applications, or any benefits linked to base salary, such as life cover.
The paper published by HMRC outlined three potential scenarios for changing salary sacrifice. The first scenario removed the NI exemption, which would mean employer and employee NI charges on the salary sacrificed.
In scenario two, both the NI exemption for employers and employees and the income tax exemption for employees were removed. And in scenario three, the NI exemption was removed but only on salary sacrificed above a £2,000 a year threshold.
Employers surveyed indicated all three scenarios could hit employee morale, though scenario three was seen as potentially more acceptable due to its fairness.
Caroline Harwood, head of employment tax at BDO, said: “It’s clear from our survey findings that employers are bracing themselves for reform. Indeed, HMRC’s survey from earlier this year suggested that changes to pensions salary sacrifice schemes are under active consideration.
“Tax reliefs on pensions are costly. The most recent figures show that the cost of NI tax reliefs from contributions to, and benefits from, registered pension schemes reached £23.5bn in 2023/24. Meanwhile the cost of income tax relief for registered pension schemes reached £28.5bn in the same period.
“However, the challenge for the government is how to restrict relief on pensions without discouraging people from saving enough for their future.
“One approach could be to limit the NI exemption to say £2,000 to £5,000 of total salary sacrificed for all benefit types.
“One other, perhaps simpler, option, would be to keep the salary sacrifice system as it is but impose a simple levy on pension fund values. This could be done by adding a small percentage to the annual charges. A small levy of say 0.25 percent would hardly be noticed by pensions savers and could be easily collected by pension fund managers.”
Harwood said that whatever path the government chooses, some changes to pensions taxation at the Budget look very likely.
