As many as 16% of workers have hesitated over or turned down a pay rise, bonus or promotion because they feared higher taxes or losing valuable allowances, new research from Standard Life has found.

More than one in five (21%) said they would consider rejecting a pay rise if it pushed them into a higher income tax band, while 7% cited the potential loss of other support or allowances and 5% childcare support.

The survey, carried out for the retirement specialist firm by Opinium in June, comes five years after the government froze income tax thresholds, with rising wages pushing more people into higher tax bands.

Standard Life analysis showed that the Personal Allowance would be £16,072 in 2026/27 if it had kept pace with inflation, £3,502 above its current level, while the higher-rate threshold would be £64,274 rather than £50,270.

Younger workers and parents were particularly likely to reconsider pay increases. More than a quarter (28%) of Gen Z workers had hesitated over or refused a pay rise, compared with 19% of Millennials, 10% of Gen X and 3% of Baby Boomers. The proportion was 22% among parents with children under 18, compared with 14% of non-parents.

Awareness of pensions as a potential way to manage the impact of tax thresholds was relatively low, with fewer than half (48%) aware that increasing pension contributions can reduce the income tax some people pay. However, once the benefit was explained, 56% said they would consider increasing pension contributions to retain more of a pay rise or bonus, rising to 63% among Gen Z workers.

The findings also come ahead of planned changes to 'salary sacrifice' in 2029.

Neil Jones, tax and estate planning specialist at Standard Life, said it was “concerning” that some people were thinking twice about career progression because they feared being worse off.

Jones said: “The findings also highlight a knowledge gap around pensions, with less than half aware that increasing contributions can help reduce the amount of income tax some people pay. For those approaching certain income thresholds, paying more into a pension may, depending on their circumstances, help reduce the tax impact while also putting more aside for retirement.

“With changes to salary sacrifice due from April 2029, one of the tools some employees currently use to increase pension saving and improve tax efficiency could become less effective. That may reduce the options available to help offset the impact of a pay rise or bonus through pension contributions, making it even more important that people understand the options available before deciding whether turning down additional income is the right choice for them.”

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