The Chancellor may consider charging employers National Insurance for retirement contributions in October’s Budget, according to pensions consultancy firm Lane Clark & Peacock (LCP).
Chancellor Rachel Reeves could target private sector pensions (Image: Getty)
Rachel Reeves could launch a £16 billion pension tax raid and hit retirement incomes, a report has warned.
The Chancellor may consider charging employers National Insurance for retirement contributions in October’s Budget, according to pensions consultancy firm Lane Clark & Peacock (LCP).
Ms Reeves could be tempted to target tax relief on employer contributions which are currently exempt from National Insurance (NI).
This would save the Treasury £23 billion, according to Government calculations.
Chancellor of the Exchequer, Rachel Reeves during an ‘in conversation’ event (Image: PA)
But LCP suggested the Chancellor may choose to exempt public sector workers.
This would save ministers £16 billion – but it would leave private sector employers to pick up the bill.
Employees pay an NI rate of 8pc on earnings between £242 and £967 a week and 2pc thereafter. Employers pay 13.8pc on all earnings above £175 per week. But no NI is levied on either the worker or the firm if that same remuneration is paid into a pension.
Experts fear the changes could lead to employers lowering the amount they spend on their workers’ pensions, hitting retirement incomes.
But LCP said Ms Reeves may continue targeting pensioners because it has the “potential to raise billions of pounds”, could be implemented quickly and would not directly hit voters’ pay.
Tom McPhail, of pensions consultancy The Lang Cat, warned that targeting employer pension contribution tax relief would leave employees worse off in retirement.
He said: “The consequence will likely be that generous pension schemes where employers pay more than the minimum of 3pc will get rarer.
“The impact on employers will be smaller retirement savings in 10 or 20 years down the line when they come to retire.”
Steve Webb, partner at LCP said: “The Chancellor will be looking for relatively simple changes which can be introduced quickly and will raise large sums with least voter anger.
“Changes to taxes on business may fall within that category and the large cost of exempting employer pension contributions from NI contributions will not have escaped the Chancellor’s attention”.
A Treasury spokesman said: “We do not comment on speculation around tax changes outside of fiscal events.”
