Rachel Reeves’ salary sacrifice raid set to leave almost three million Britons with poorer retirement
Almost three million Britons could face a poorer retirement under Rachel Reeves's planned salary sacrifice raid, according to newly released Government figures.Data from HMRC, obtained through a Freedom of Information request by former Pensions Minister Sir Steve Webb, shows 2.9 million workers are expected to reduce pension contributions once the policy comes into force.The figures challenge Treasury claims that the reforms primarily affect wealthier savers.HMRC estimates that 666,000 of those impacted will be basic-rate taxpayers earning less than £50,271 a year.That means roughly one in four of those affected are not higher earners, despite Government claims the measure targets those who build up pension wealth tax-free.Under plans announced in the Autumn Budget, ministers intend to introduce a £2,000 cap on pension contributions made through salary sacrifice before National Insurance becomes payable.From 2029, contributions above that threshold will be subject to National Insurance charges of eight per cent for basic-rate taxpayers and two per cent for higher-rate earners.Salary sacrifice arrangements allow employees to exchange part of their salary for employer pension contributions, reducing taxable income and National Insurance liabilities.Almost three million Britons could face a poorer retirement under Rachel Reeves's planned salary sacrifice raid | GETTYThe Treasury has defended the reforms as a crackdown on what it describes as a tax break disproportionately used by wealthier pension savers.Ministers expect the changes to raise between £4billion and £5billion.Sir Steve, now a partner at pension consultants LCP, criticised the policy."At a time when the Government is running a major commission to tackle the issue of pension under-saving, it is shocking that a separate government policy will result in over 2.9 million workers cutting back on pension saving," he said.
RACHEL REEVES - READ THE LATEST:
The figures were obtained through a FOI request by former Pensions Minister Sir Steve Webb | PAHe added: "But these figures show that the effects of the policy will be far more damaging than had previously been admitted."Sir Steve questioned whether the reforms represented "joined-up government", arguing ministers were encouraging pension saving while simultaneously introducing measures that would reduce contributions.The analysis also suggests employers will shoulder much of the burden.The Office for Budget Responsibility estimates businesses will account for around £3billion of the £4.8billion expected to be raised in 2029-30 through higher employer National Insurance contributions.HMRC estimates that 666,000 of those impacted will be basic-rate taxpayers earning less than £50,271 a year | GETTYFirms currently benefit from lower National Insurance bills when staff use salary sacrifice schemes because contributions are deducted before the levy is applied.Separate research from the Institute for Fiscal Studies suggests around one million households could be almost £900 worse off a year, with businesses expected to offset additional costs through lower wage growth.The figures emerged less than a month after a major pensions review warned that 15 million Britons are not saving enough for retirement, with middle earners, women and the self-employed among those most at risk.A spokesman for the Treasury said: “High earners piled in huge bonuses through salary sacrifice without paying a penny in tax - a taxpayer funded perk largely benefitting the better off.“Our fair reforms protect 95pc of workers earning under £30,000 using salary sacrifice will be protected, and as IFS analysis shows, over three quarters of under 30s will be unaffected.”
