2 pension tricks to outwit Rachel Reeves as savings to be ransacked | Personal Finance | Finance
An expert has offered two key pieces of advice to savers after Rachel Reeves announced in her budget that she would raid Brits’ retirement savings. From April 2029, the amount exempt from national insurance for employee contributions made through salary sacrifice will be capped at £2,000 per year if an employee agrees to reduce their gross salary or sacrifice a bonus and have their employer pay the same amount into their pension. This was one of a series of financial changes Ms. Reeves announced in a bid to generate additional income.
InvestEngine Investments Manager Andrew Prosser said the change wouldn’t be a big deal for those earning £40,000 and contributing 5% of your salary, as they were “well within the cap”. He added: “But for high earners the impact is greater and lasts over decades, and when compound investment growth is taken into account this can significantly reduce someone’s pension pot.
“Employers may also reduce contributions by adding another hit.”
He then gave two tips for savers. Mr Prosser said: “To counter this, people will need to review their workplace pensions, maximize employer contributions wherever possible and consider top-up using remaining annual allowances.”
Spouses and civil partners can “co-ordinate their allowances and investments to generate more income from tax”, helping to protect retirement savings, the expert suggested.
Kevin Fitzgerald, chief executive of UK Employment Hero, said: “Limiting the amount people can contribute through salary sacrifice may achieve the short-term objective of increasing income for the Government, but there is a longer-term risk to consider.
“The result will mean people saving less from their pensions at a time when they are already struggling to save enough. This will be worrying for older workers who already face a tough landscape when it comes to the job market.”
He added: “This is another layer of complexity at a time when employers need to support businesses to drive employment growth and productivity, ultimately providing long-term revenue for the Government.
“It’s not just about rising costs, payroll is becoming more complex because NI will need to be implemented differently above the cap – it won’t be simple, which will add another admin burden on payroll teams.
“Small businesses need clarity and employees need support to plan for their future while continuing to work and contribute – this move risks achieving neither of these.”
The Chancellor also said income tax thresholds will remain frozen, resulting in 780,000 more basic rate, 920,000 higher rate and 4,000 more additional rate income taxpayers in 2029/30 as earnings rise over time.
So-called “fiscal drag” means people are dragged into paying 20% income tax if their earnings rise above £12,570; The 40% band is from £50,271 and the 45% band is from £125,140.
Ms Reeves is accused of breaking Labor’s manifesto promise not to tax workers more.
Earlier this week he insisted taxes were being kept “to an absolute minimum for ordinary working people”.
He added: “You won’t be writing my obituary today.”
Prime Minister Sir Keir Starmer said the budget “asks everyone to pitch in” to protect public services and help people struggling to make ends meet.
