Pension tax break lowered by chancellor | EUROtoday

Some pension savers will face successful to the amount of cash they’ll put into their pension with out paying nationwide insurance coverage (NI), beneath measures introduced within the Budget.

From 2029, there might be a cap of £2,000 per yr that may be shielded from employer and worker NI contributions by utilizing a technique referred to as wage sacrifice.

There is at present a a lot increased restrict to the quantity a employee can agree their employer to pay in, with the scheme seen as a option to encourage employees to pay into their pensions.

The measure will increase £4.7bn in further NI contributions in 2029, the Office for Budget Responsibility (OBR) has estimated.

Salary sacrifice lets employees and employers agree an quantity to be taken out of pay and shifted right into a pension earlier than the wage is hit by National Insurance Contributions (NICs) and earnings tax. Workers “sacrifice” the next wage, however obtain a tax-free sum into their pot, with every pay cheque.

Chancellor Rachel Reeves mentioned the present system favoured high-income earners and people who work in monetary companies, “who can put their bonuses into pensions tax-free”.

The £2,000 cap on wage sacrifice was a “pragmatic step”, Reeves mentioned, and would imply low and middle-income earners might proceed to make use of the scheme “without paying any more in tax”.

The wage sacrifice coverage additionally reduces the general quantity of employer National Insurance Contributions (NICs) that firms pay, so any cap will imply the next NICs invoice for firms or a rethink on whether or not they provide the perk.

About a 3rd of personal sector staff and a tenth of public sector employees use a wage sacrifice scheme for his or her pension financial savings. Analysis by HM Revenues & Customs urged about 7.7 million staff used it in 2024.

Former pensions minister Steve Webb, now accomplice at LCP, mentioned that the time till National Insurance funds are due on wage sacrifice, greater than three years away, means it’s unlikely the chancellor will increase the £4.7bn the OBR estimates.

“The decision not to implement this change until 2029 creates a huge opportunity for firms to restructure the way that they offer pay and pensions in order to mitigate or eliminate this new charge,” Mr Webb mentioned.

“There is a high probability that this policy will only raise a fraction of the amount expected by the chancellor.”