Rachel Reeves plotting another Budget change that could cut your pay by £560 a year | Personal Finance | Finance
Millions of workers across the UK could see their take-home pay fall under new Budget plans reportedly being considered by the Treasury. Chancellor Rachel Reeves is said to be weighing up changes to the way workplace pensions are taxed, and experts warn it could leave some employees hundreds of pounds worse off each year.
The potential move relates to salary sacrifice, a common system used by both workers and employers to boost pension contributions. Under current rules, employees can give up part of their gross salary in exchange for pension payments, helping them save money on National Insurance.
But research published by HMRC earlier this year suggested that this system might soon be reformed, and speculation is growing ahead of the Chancellor’s Autumn Statement on November 26.
According to industry experts, any change could result in lower take-home pay for workers and higher costs for businesses.
Steve Hitchiner, the chair of the Tax Group at the Society of Pension Professionals (SPP), said: “Changing salary sacrifice arrangements would lead to a reduction in take-home pay for millions of employees who are saving into a workplace pension, with the greatest impact for those earning less than £50,284 a year.
“It would also represent another sizeable cost to employers, despite the Chancellor’s public commitment against this, and would undermine the critical role that employers play in supporting and promoting good quality pension saving vehicles.”
The SPP has written to every MP urging the Government not to scrap or restrict salary sacrifice, warning it would damage long-term pension savings and hit lower earners the hardest.
Although no final decision has been made, there are several options on the table.
If both income tax and National Insurance relief were removed from salary sacrifice contributions, a typical worker earning £35,000 and giving up 5% of their salary could lose around £560 per year, the Sun reports.
If only National Insurance relief were scrapped, the same worker would still lose roughly £210 a year.
Even under a more limited proposal, such as removing NI relief only on contributions above £2,000, many people would still see their pay reduced, though by a smaller amount.
The government currently spends around £4.1billion a year on NI relief through salary sacrifice, making it an attractive target for a cash-strapped Treasury.
Bosses have warned that the move would reduce benefits, lower morale, and confuse employees, while some say it would make the scheme “pointless” to operate.
In addition to the pension changes, ministers are also said to be reviewing other tax options ahead of the Autumn Budget.
These include extending the freeze on income tax thresholds until 2030, hiking basic income tax by 2p, and possibly reforming council tax for higher-value homes.
A final decision on the salary sacrifice proposal is expected after November 21, when the Office for Budget Responsibility delivers its latest economic forecast.
