Panic as pensions could be worth 'tens of thousands' less after Budget

Pension pots may start to shrink after Rachel Reeves delivers her Budget next week due to the rumoured changes to National Insurance and salary sacrifice schemes. The pension pots of working Britons may be tens of thousands of pounds worse off, new data shows, as three-quarters of UK companies warn that they would not be able to top up their employer contributions.

Under the current rules, there is no upper limit to the contributions that workers can put into their pension pots under salary sacrifice. By doing so, it allows employees to lower their taxable income and for companies to pay less employer NICs as they only pay 15% on the worker's income after pension contributions.

However, in her Budget, Ms Reeves is predicted to cap the amount employees can sacrifice to £2,000 a year without paying National Insurance. Any contributions over this level would result in employees paying the full rate of National Insurance on the amount contributed above the limit.

Now a fresh Confederation of British Industry (CBI) survey has revealed that very few businesses would be able to make up the shortfall if the Chancellor axes salary sacrifice schemes or makes changes to National Insurance. This would mean that monthly pension pot contributions would drop, as parts of the payments would be diverted to help pay the additional National Insurance bill.

The companies that participated in CBI's survey include some of the largest retail, financial, manufacturing and technology companies in the country. One of the respondents warned that Labour's proposed tax raid would increase their company's payroll outgoings by £4.7million.

The survey shows that 74% of firms claim they would not increase their employer contributions to offset their workers' lower contributions from paying National Insurance, and just 13% said they would.

The CBI's director-general, Rain Newton-Smith, told The Times: "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."