British workers have been warned their pension pots could be worth tens of thousands of pounds less if Rachel Reeves presses ahead with a Budget raid.
The Chancellor is reportedly planning to limit the amount people can sacrifice from their salaries to put in their pension pots without paying National Insurance.
It is thought this could raise up to £4billion as Ms Reeves scrambles to fill a multi-billion pound black hole in the public finances.
National Insurance is charged at 15 per cent for employers and at 8 per cent on employee earnings less than £50,270, with 2 per cent charged on income above that.
A survey by the Confederation for British Industry (CBI) suggested few firms would absorb the costs if salary sacrifice schemes were axed, or National Insurance was charged above a new cap.
The CBI did not release the names of the companies who responded, but businesses who were sent the survey included DHL, Shell, NatWest, Tesco and BAE Systems.
Nearly three-quarters (74 per cent) of firms said they would not increase their employer contributions to offset workers’ lost contributions from paying National Insurance.
Only 13 per cent said they would top up contributions to offset the new tax liability.
British workers have been warned their pension pots could be worth tens of thousands of pounds less if Rachel Reeves presses ahead with a Budget raid
Rain Newton-Smith, the CBI’s director-general, said Ms Reeves now risked ‘putting up the cost of employment’ again.
At her first Budget in October last year, the Chancellor hiked employer’s National Insurance contributions (NICs).
Ms Newton-Smith said: ‘Last year’s NICs changes have seen some businesses already reducing headcount and scaling back investment, and a ‘stealth tax’ on pensions risks doing the same.
‘It would be particularly hard for employers who share their NICs savings with staff, a move that boosts pension pots and reduces state burdens down the line – that’s why businesses have told us it’s ‘a tax on doing the right thing’.
‘The Government’s own Pensions Commission is looking at how to address under-saving for retirement right now.
‘Introducing a short-sighted revenue-raising measure now would pre-empt its work and could cost more in the long-run.’
According to a CBI analysis, a 22-year-old man on the median income (currently £37,382) expecting to retire at state retirement age of 68, who put a 9 per cent combined contribution into their pension pot annually, would retire with £223,297.
If an employer reduced their contribution by 1 per cent, that pension pot would fall to £198,486 on retirement, a reduction of almost £25,000.
The reduction would be even larger for those on higher-rate taxpayers, who earn more than £50,271.
One company that responded to the CBI survey described a raid on pension salary sacrifice schemes as a ‘stealth tax that punishes firms for helping people save for retirement’.
Another said it was a ‘terrible idea that would hit employees’ pension pots and make saving for the future harder at exactly the wrong time’.
