UK Pension Cuts Loom: 1/3 of Firms to Slash Contributions

A potential £2,000 cap on salary sacrifice pension contributions is poised to trigger significant cutbacks, with almost one-third of UK businesses indicating they would reduce employee pension payments. This proposed policy, detailed by the Reward and Employee Benefits Association (REBA), could negatively impact both the economy and individual savers. Many companies currently contribute more than the automatic enrolment minimum, and a cap would impose higher national insurance costs on employers, potentially leading to reduced benefits or services for staff.

The Treasury estimates this measure could generate between £3bn and £4bn annually. However, business leaders and pension advocates express strong concerns. They highlight the administrative complexity and the negative message sent to employees about the importance of retirement savings. Furthermore, 70% of surveyed HR directors are worried about increased administrative burdens, adding to operational costs and complexity for businesses.

Experts warn that limiting salary sacrifice is fundamentally at odds with broader government objectives for pensions policy. Such a change could exacerbate the existing problem of insufficient retirement savings for millions in the UK, leading to long-lasting negative consequences for individuals and the economy. The constant uncertainty surrounding pensions policy is also eroding trust in the system.