While wages are the typical area of HPC focus when it comes to debates regarding fairness of pay and income inequality, pension provisions also inevitably affect employees’ standard of living in retirement. A guest blog by HPC researcher Paddy Goffey.
Reports that the Chancellor is considering scaling back the salary-sacrifice scheme are therefore concerning, as this enables employees to direct an additional percentage of their salary into their pension pot and avoid national insurance contributions. The scheme also reduces employer costs, raising concerns that such a change could lead to employers further reducing their pension contribution rates, effectively resulting in a pay cut. Such a move would only exacerbate the UK’s retirement savings crisis.
HPC data highlights the comparative lack of engagement by companies in meeting good standards of pension provision when compared to wages. Namely, as of December 2024, 57% of FTSE100 firms were living wage accredited, versus just 15% that were living pension or pension quality mark accredited. Additionally, as the FT notes, the large majority of UK workers remain unaware of the salary-sacrifice perk. Given this discrepancy, government focus should instead be on ensuring employers uphold decent standards on both pay and pensions, as well as improving awareness of the scheme and the benefits it offers. With the upcoming ‘Pension Schemes Bill’ offering a chance to reform pensions in the interests of savers, it would be a great shame if this was undermined by a curtailment of the salary-sacrifice scheme.