Workers’ pensions expected to soak up costs if Reeves taxes salary sacrifice schemes
Workers’ pensions could be cut by tens of thousands of pounds if the chancellor introduces national insurance pay sacrifice schemes in next week’s budget, a poll has found.
Research by the Confederation of British Industry (CBI) shows businesses will often be unable to cover the costs if tax obligations are changed in the Autumn Budget.
Salary sacrifice programs allow employees to give up some of their salary for a different benefit, such as retirement contributions.
The Chancellor is said to be preparing to cap the amount that can be sacrificed from someone’s salary to £2,000 a year. From now on, national insurance premiums will accrue.
But almost three-quarters of UK firms agreed they would not increase employer contributions to offset the new liability if such a measure was introduced. Only 13 percent of respondents said they would increase it.
With reduced contributions to pension funds as a result, workers can expect their monthly pension contributions to fall by potentially tens of thousands of pounds a year. The Times.
CBI did not specify the respondents to its survey. It turned out that they represented a broad picture of different industries.
One of the businesses stated that they would have to take into account new costs of around £5 million a year if such a measure was introduced in the budget.
The move could bring as much as £2 billion a year to the British economy and would mainly affect high-income earners.
Organizations representing the pensions industry and businesses have warned that any potential restrictions on pay cuts or pension tax cuts in next week’s budget risk damaging public confidence in the pension system and damaging economic growth.
The Federation of British Pensions and Small Businesses (FSB) has sent a joint letter to Chancellor Rachel Reeves, urging her not to restrict salary sacrifice schemes or wider pension tax cuts.
Ahead of the 26 November Budget, organizations have warned that even speculation about potential changes is eroding savings confidence as questions from savers increase and the potential for people to take unnecessary early pensions.
They argued that this also leads to uncertainty for plans and employers.
Pensions England and the FSB said many employers rely on salary sacrifice schemes to support staff retention and reward, and that higher costs and operational disruption will make it harder to offer competitive benefits, invest in growth or plan effectively.
They argued that payroll systems would also need to be adjusted, agreements would need to be reconsidered, and staff resources would be redirected.
The Chancellor has warned there will be no “easy choices” on November 26 after the Institute for Fiscal Studies (IFS) estimated he would need to find at least £22bn to stabilize the public finances.
