Britain\u2019s pensions industry has written to the chancellor to warn that a budget tax grab on retirement savings would be bad for the economy, and for workers. <\/p>\n
In an open letter to the chancellor, the industry body Pensions UK and the Federation of Small Businesses have said that the \u00a32 billion the policy would raise was \u201cinsufficient to merit the levels of disruption to saving, investment and growth\u201d.<\/p>\n
The group said the rumored changes could \u201cweaken the foundations of the pensions system\u201d and \u201cencourage rushed decisions\u201d by savers. <\/p>\n
Leading pension and savings firms have also urged Reeves to abandon the plan before the budget on Wednesday.<\/p>\n
What is the plan?<\/p>\n
Salary sacrifice schemes allow workers to give up part of their wages in exchange for other benefits, predominantly pension contributions. The money comes out before it reaches your pay packet so it is not subject to national insurance in the same way that normal pension contributions are. Employers also save on their national insurance contributions.<\/p>\n
Reeves could cap at \u00a32,000 the amount that can be sacrificed without being liable for national insurance contributions. At the moment, you can pay up to \u00a360,000 a year into your pension and get the full relief. <\/p>\n
\u2022 Reeves warned against pensions tax raid as savings crisis is laid bare<\/a><\/p>\n Three-quarters of Pension UK\u2019s members believe that savers are likely or very likely to alter their retirement contributions or decisions if Reeves limits the benefit, while 97 per cent said the leaks and rumours of what could be in the budget were damaging confidence in pension saving. <\/p>\n Jamie Fiveash, the chief executive of Smart Pension, which manages about \u00a38.5 billion of pension savings, said: \u201cChanges to salary sacrifice would be a false economy for the Treasury, offering a short-term political win while risking long-term financial damage for millions of savers. <\/p>\n \u201cSalary sacrifice is a key incentive for people to save more, which is exactly what this country needs given the current savings gap and the future retirement crisis we are facing.\u201d<\/p>\n A poorer future<\/p>\n Analysis from the Department for Work and Pensions shows that 4.6 million people are on track for a standard of living in retirement that is below Pensions UK\u2019s \u201cminimum\u201d, based on how much they currently save. <\/p>\n Paying into a pension using salary sacrifice can lower your income below certain thresholds, such as the \u00a360,000 child benefit threshold or the \u00a3100,000 cliff-edge over which you begin to lose your personal allowance and free childcare benefits. <\/p>\n Ten pension firms \u2014 Aegon, Aviva, Royal London, Mercer UK, Hargreaves Lansdown, AJ Bell, Interactive Investor, Now:Pensions, PensionBee and Smart Pension \u2014 told Times Money that a cut to the benefits of salary sacrifice could cause long-term damage to pension prospects. <\/p>\n \u201cAny reduction in the amount that can be paid into pensions via salary sacrifice will undoubtedly have an impact on the amount being saved for retirement,\u201d said Jamie Jenkins from Royal London, a pension firm with \u00a3181 billion of assets under management. <\/p>\n