Rachel Reeves could launch pension perk tax raid: "A tax on working people, plain and simple"

CHANCELLOR Rachel Reeves could launch a pension perk tax raid that experts have denounced as a “tax on working people, plain and simple".

A crackdown on salary sacrifice pension schemes could hit the take-home pay of millions, The Society of Pension Professionals (SPP), which represents advisers and trustees, says.

Reeves is considering capping tax breaks offered to staff and employers who pay into workplace schemes.

It could be one of the schemes to save the government money during the crucial Budget later this month.

Reeves will be looking to bring inflation, currently at 3.8%, down nearer to its target of 2% and plug a reported financial black hole of over £20billion.

Salary sacrifice schemes allow workers to put money into their retirement pots tax-free – the tax is only levied on pay left over after pension contributions.

Companies benefit from lower employer National Insurance contributions when staff take advantage of these schemes.

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said targeting these schemes would be counter-productive.

He added: “A tax raid on salary sacrifice is a tax on working people, plain and simple. These schemes aren’t loopholes they’re lifelines for millions who sensibly save for their future. 

"Cutting back on them would hit ordinary workers the hardest, reducing take-home pay and discouraging pension saving at a time when the government should be doing the opposite. Instead of punishing prudence, ministers should be rewarding it because a country that taxes saving is a country that forgets how to grow”

Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said the government would be shooting themselves in the foot.

He continued: "Salary sacrifice is a great tool for the companies that allow it. It's particularly convenient for higher rate tax payers as full tax relief is given automatically and not enough people claim tax relief through their self assessments. 

“One of the Budget rumours is that National Insurance may be cut, which would erode the benefits naturally. It's in the government's interest for us to all save properly for retirement so it's odd that every Budget they damage confidence by faffing around with pensions.”

Scott Gallacher, Director at Leicester-based Rowley Turton, said people taking responsibilty for their future are being penalised.

He added: “A crackdown on salary sacrifice pension schemes would be deeply disappointing and, frankly, counterproductive. Time and again, governments talk about concerns over retirement poverty and Britain’s need to save more for the future. 

"Yet, short-term Treasury thinking so often overrides this laudable aim. Instead of encouraging long-term saving and financial resilience, we see a steady erosion of incentives through restrictions on pension contributions, limits on tax-free cash, talk of reducing the Cash ISA allowance, and cuts to Capital Gains Tax and dividend allowances. 

"Now, even salary sacrifice—a simple, efficient way for ordinary working people to save for retirement—is under threat. If the government is serious about tackling the looming pensions crisis, it needs to stop penalising those who take responsibility for their own financial future.”