Rachel Reeves deals massive blow to 3 million Britons with pensions raid | Politics | News
Rachel Reeves’ £5bn crackdown on pensions will leave nearly three million workers poorer in retirement, official figures have revealed. HM Revenue and Customs (HMRC) estimates that around 2.9 million people will reduce their pension contributions when restrictions on salary sacrifice schemes come into force in 2029.
Of these, 2.2 million are high rate taxpayers, but a striking 666,000 are basic rate earners with incomes of less than £50,271 a year. The data, released through a Freedom of Information request from former pensions minister Sir Steve Webb, reveals the far-reaching impact of the policy announced in the Chancellor’s second budget.
Under the changes, workers will face a £2,000 cap on pension contributions through salary sacrifice before National Insurance (NI) becomes payable. The Treasury expects the move to raise £4bn; employers foot the bulk of the bill through higher NI contributions; £3bn of the total in 2029-30 alone.
It comes on the heels of a £25bn employer NI raid announced in Chancellor Ms Reeves’ first budget, raising fresh concerns that the measures are becoming a hidden tax on jobs. Businesses are expected to offset costs by offering smaller pay increases to staff.
Sir Steve Webb, now a partner at LCP consultants, said: Telegram: “The government has presented changes to salary sacrifices for pensions as a relatively painless way of eliminating tax relief that mostly benefits the wealthy.
“But these figures suggest that the effects of the policy will be much more harmful than previously recognised.”
The raid comes less than a month after a major government-commissioned review warned that 15 million people had insufficient savings for retirement, with middle earners, women and the self-employed most at risk.
Sir Steve criticized the lack of “joined government”, stating that one arm of policy encouraged greater retirement savings while the other actively discouraged it.
He added: “At a time when the government is running a major commission to tackle the problem of inadequate retirement savings, it is shocking that a separate government policy has resulted in more than 2.9 million workers having their retirement savings cut.
“About 25 percent of those are basic taxpayers.”
A separate analysis by the Institute for Fiscal Studies found that one million households would be almost £900 a year worse off as a result.
Salary sacrifice allows employees to reduce their taxable pay in exchange for tax-free benefits, including pension contributions, which avoid both income tax and NI. Employers also save money on NI.
The policy is expected to further fuel business frustration with the Government’s tax-raising approach and intensify the debate over whether Labour’s fiscal strategy is undermining the long-term retirement security of millions of Britons.
Express.co.uk has approached HMT for comment.
