Labour’s plans to increase National Insurance (NI) on pension contributions could spell trouble for salary sacrifice schemes, experts have warned.

Jonathan Reynolds, the business secretary, gave the strongest hint yet that Chancellor Rachel Reeves would target employer pension schemes on October 30’s Budget.

The cost of the policy falls on employers rather than employees but reports have repeatedly warned workers would indirectly suffer as firms cut back on pay rises, pension schemes  and other perks.

Experts told The Telegraph the move could be the death knell for pension salary sacrifice schemes – a tax-advantageous alternative to a traditional pension scheme.

Employers currently pay no National Insurance on pension contributions, which incentivises them to provide for their staff members’ retirement.

Scrapping this relief could raise significant funds for the Treasury with no immediately noticeable changes in workers’ take-home pay.

However, it could make it more expensive for businesses to hire staff, with knock-on effects for pay, pensions and salary sacrifice schemes.

These arrangements allow workers to swap some of their salary for higher pension contributions.

They are particularly popular among workers facing tax cliff-edges. For example, a parent paying the high income child benefit charge might use a salary sacrifice arrangement so they can bring their pay below the £60,000 threshold and keep more of their child benefit payment.

Workers earning between £100,000 and £125,140 might also use it to escape the controversial 60pc tax trap.

Currently, both the employee and the employer save NI in these arrangements owing to the lower salary. But employers would no longer get this tax benefit if NI were levied on pension contributions, experts said.

Nimesh Shah, of accountancy Blick Rothenberg, said: “If the Chancellor made it so that employer’s NI (at 13.8pc) was applied to salary sacrifice pensions, I expect businesses to seriously rethink the viability of the scheme.

“The cost of administering these schemes is high and so the employer needs to balance absorbing the cost against providing this arrangement as part of its benefits proposition to employees.”

Michelle Denny-West, of accountancy firm Moore Kingston Smith, said: “Making pension contributions via salary sacrifice saves the employee tax and NI on the amount contributed.

“The employer also makes a NI saving so everyone wins. Many employers will also contribute some or all the NI savings they make which further boosts an employee’s pension pot without hitting them in the pocket.

“If NI is introduced on employer contributions, the monetary benefit of offering salary sacrifice will be gone, as will the motivation for employers to incur the cost and hassle of offering a salary sacrifice scheme.”

Employees could still lower their salary and stay out of a higher tax band by increasing their personal contributions into their pension. But workers with poor knowledge of the pension system might be less likely to do this, Ms Denny-West said.

“The additional effort and complexity will undoubtedly result in reduced contributions overall, which will end up costing the working population more in the long run,” she added.

Clare Stinton, of stockbroker Hargreaves Lansdown, said smaller employers might think twice about setting up a salary sacrifice scheme if NI were introduced to employer pension contributions.

“It’s unlikely employers will reduce their contributions to existing pension schemes as this would need to become part of a wider conversation and consultation about overall remuneration and reward.

“However, they could pass this additional cost on by reducing the pace at which they increase future contributions, or perhaps pay rises and it will certainly have an impact on smaller employers looking to set up a salary sacrifice arrangement in their workplace pension in the future.”

A government spokesman said: “We do not comment on speculation around tax changes outside of fiscal events.”