national insurance<\/a> (NI).<\/p>\nFor many, it makes pension saving significantly more efficient.<\/p>\n
Employees can reduce their NI contributions and benefit from tax relief on the money they put in their pension.<\/p>\n
Employers don\u2019t pay NI on money they pay into their staff members\u2019 pensions, and also reduce their bills further because their employees reduce their salary.<\/p>\n
Although employers have to pay NI on wages \u2013 with the rate rising from 13.8 per cent to 15 per cent in April \u2013 they do not on pensions.<\/p>\n
Employers currently have to auto-enrol most employees into a pension scheme and pay in 3 per cent, with employees paying 5 per cent, but some employers offer to pay more if their employees agree to pay more.<\/p>\n
For example, some will match their employees contributions up to 8 per cent.<\/p>\n
Financial planners say removing that relief could discourage firms from offering generous pensions<\/p>\n
\u201cWithout that incentive, we could see the standard level of employer pension contributions fall, further widening the pension gap at retirement,\u201d said Dagless.<\/p>\n
Former Tory pensions minister, Baroness\u00a0Altmann, said such a change would be costly and hard to roll out quickly.<\/p>\n
She explained: \u201cEnding NI employer relief would end salary sacrifice too and this change would cost employers huge sums as well as being an administration nightmare. It could not be implemented quickly.\u201d<\/p>\n
Tax-free lump sum changes could cost some big savers \u00a310,000<\/p>\n
Perhaps the most politically sensitive reform is cutting the 25 per cent tax-free lump sum.<\/p>\n
Currently, savers can withdraw 25 per cent of their pension \u2013 up to \u00a3268,275 \u2013 without paying tax.<\/p>\n
One option previously proposed by the Institute for Fiscal Studies think-tank is reducing that threshold to \u00a3100,000 \u2013 a move that would increase tax bills in retirement for many.<\/p>\n
Altmann said this benefit is one of the key reasons people contribute to pensions in the first place, adding: \u201cRestricting or reducing the tax-free lump sum would undermine confidence in pensions significantly.<\/p>\n
\u201cIf existing pensions are hit, then it is another retrospective tax change.\u201d<\/p>\n
For a basic rate taxpayer, paying 20 per cent tax on an extra \u00a3168,275 could mean them paying an extra \u00a333,653 in tax across their entire retirement.<\/p>\n
The uncertainty makes planning impossible<\/p>\n
The bigger issue for many financial advisers is not just what changes might come, but the damage done by the constant speculation.<\/p>\n
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: \u201cPensions are a long-term game and a long-term approach to them is needed. Tinkering with tax rules undermines confidence in the system and creates complexity that makes people hesitant to save.\u201d<\/p>\n
She warned that rumours over the tax-free lump sum last year even led people to take money out of their pension early, worried the benefit would be removed.<\/p>\n
Morrissey added: \u201cIt can lead to really poor outcomes. You could even fall foul of pension recycling rules or end up parking the money in an account earning poor interest.\u201d<\/p>\n
A spokesperson for the Treasury said: \u201cAs set out in the Plan for Change, the best way to strengthen public finances is by growing the economy \u2013 which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by \u00a36.8bn and cut borrowing by \u00a33.4bn.<\/p>\n
\u201cWe are committed to keeping taxes for working people as low as possible, which is why at last autumn\u2019s Budget, we protected working people\u2019s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurancee, or VAT.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"A number of popular relief schemes, including the 25 per cent tax-free lump sum, that encourage workers to…\n","protected":false},"author":2,"featured_media":24873,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[458,84,4176,4178,4174,4175,1445,4204,3668,474,56,54,55],"class_list":["post-24872","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-budget","tag-business","tag-finance","tag-pensions","tag-personal-finance","tag-personalfinance","tag-rachel-reeves","tag-retirement","tag-savings","tag-tax","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/24872","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=24872"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/24872\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/24873"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=24872"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=24872"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=24872"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}