Pensioners have been warned that Rachel Reeves could change salary sacrifice to launch a tax raid on their retirement funds. Employees can currently opt to sacrifice a portion of their wages to be paid into their pension. This is exempt from both income tax and National Insurance, thereby adding to their pension pot and retirement. However, millions could be at risk of a stealth tax raid after HMRC funded research into altering the rules, The Telegraph reports.
The documents, published by HMRC, revealed that 51 firms, 41 of which already offered a scheme, were consulted on three possible changes to salary sacrifice. Under one of the proposals, income tax and National Insurance relief would be removed. Someone earning £35,000 annually and paying 5% into their pension would lose £560 a year in total, while it would cost their employer an additional £241.
A second option proposed removing only National Insurance relief, costing the employee £210 and their employer £241.
In the third option, where National Insurance relief would be removed on any amount sacrificed over £2,000, the report said someone earning £45,000 would lose £30 a year and employers would spend another £34.
Employers viewed each option negatively, with some seeing the removal of both types of relief as a threat to salary sacrifice itself.
Former pensions minister Sir Steve Webb suggested the research hints at an impending tax raid being “firmly on the agenda”.
This comes after the Chancellor announced her Spending Review on Wednesday. She said total departmental budgets would grow by 2.3% a year in real terms and promised a “record cash investment” in the NHS, amounting to an extra £29 billion a year.
Ms Reeves said the tax hikes and looser borrowing rules allowed her to spend £190 billion more on the day-to-day running of public services and £113 billion on investment.
She promised funding of up to £280 million a year to put an end to asylum seeker hotels and kick out illegal migrants by 2029, aiming to save taxpayers £1 billion a year.
Other key points included plans for a “Northern Powerhouse Rail”, spending £4.5bn on the budget for schools in the next few years as well as giving police a 2.3% increase in spending.
The Chancellor said her “driving purpose” was “to make working people, in all parts of our country, better off” as she promised cash to rebuild schools and hospitals, confirmed funding for nuclear power schemes and major transport projects across the country.
