Could pensions be on the firing line in the Autumn Budget?

Tomm Adams, Partner said:

HMRC has just published a report suggesting that the Treasury have pensions in their crosshairs in the Autumn Budget. It explores ways that the Government could dismantle pension salary sacrifice arrangements, or even abolish pension tax relief altogether.

As an advocate for retirement adequacy across the general population, I would urge the Chancellor not to go down this road. To do so would be shortsighted, raising revenues today at the expense of financial stability tomorrow.

The UK’s pensions landscape is not adequate for the majority

Gross, the UK state pension provides only 21.7% of the average final salary in the UK, and even autoenrollment only boosts that to 41.9%, significantly below global averages.

No income tax break

There is a misconception at large that the pensions salary sacrifice is a form of personal income tax break; however, it doesn’t provide any more of an income tax break than any other form of managing pensions contributions.

The tax break connected with pensions generally is deferral on money that is locked away for years or decades, which is even then at risk, and there is tax still due on payments on retirement.

National Insurance incentive

There is an employer National Insurance Contribution (NIC) break at 15% for salary sacrifice schemes and an employee NIC break, which is 2% for higher earners, and 8% for average and lower earners. In my opinion ‘regular’ non-salary sacrifice contributions should also attract such reliefs.

It would be more transparent to roll the NIC exemption out to all, but this is very unlikely to happen under this government and is not something considered in HMRC’s report. However, removing this advantage would further increase costs for employers, and remove incentives for them to support their employees’ long-term financial wellbeing.

There is a practice of employers ‘donating’ part of their saving to employees to further boost their retirement pot, which is especially relevant to higher earners who don’t get that big a saving from pension reliefs. If that change is made, there will be less pension contributions going in from higher earners as well.

The alternative

There are many other options instead of attacking pensions to increase revenues with a shorter-term impact, such as unfreezing fuel duties which would add £3bn to the nation’s bottom line. Hopefully, this is just the poorly timed publication of an outdated project, and not an indication of things to come.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or Tomm using the form below.