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\t\tPeople are preparing to contribute less if salary sacrifice is changed \t<\/p>\n
Brits will save less into their pensions if rumoured changes to salary sacrifice schemes are confirmed in the Budget, putting individual retirements and economic growth at risk.<\/p>\n
According to the Association of British Insurers<\/a> (ABI), nearly 40 per cent of people will put less into their pension if Chancellor Rachel Reeves decided to cap salary sacrifice schemes at the end of the month.<\/p>\n The schemes allow employees to give up a portion of their salary for other benefits, such as childcare vouchers, reducing total incomes and overall income tax bills.<\/p>\n But for many the most popular salary sacrifice is pension schemes, which lets employees\u00a0 boost their pension contributions by agreeing to pay cuts.<\/p>\n This pushes them back under the \u00a3100,000 threshold, and allows parents to keep their free childcare hours.<\/p>\n Pension scheme allows employees to put up to \u00a360,000 a year into a pension tax free through salary sacrifice, while also allowing both themselves and employers to dodge national insurance.<\/p>\n Trouble with caps<\/p>\n However, this tax advantage could soon be stripped away<\/a>, as rumours Reeves\u2019 is considering a \u00a32bn raid on UK retirement savings continue to grow.<\/p>\n Under the new proposals, the exemption is expected to be capped at \u00a32,000 per employee per year, meaning further contributions will be subjected to national insurance rates of eight per cent on salaries under \u00a350,270, with two per cent on any income above that total.<\/p>\n While the Treasury scrambles to fill an estimated \u00a320bn fiscal black hole, the uncertainty and speculation has caused further harm to worker\u2019s confidence in the pension system, as the cost of saving for retirement gets increasingly expensive.<\/p>\n \t\t\t\t\tRead more<\/p>\n \t\t\tAutumn Budget: How could Rachel Reeves change salary sacrifice rules?<\/a><\/p>\n Just one in four feel confident in saving for later life, while nearly 50 per cent are unconvinced that the government\u2019s reforms to the system will positively impact their retirement.\u00a0\u00a0<\/p>\n Yvonne Braun, director of policy and long-term savings at the ABI, said: \u201cIt\u2019s worrying that so many people would cut their pension contributions if the government reduced tax relief in the Budget.<\/p>\n \u201cThe constant speculation about changes to pension tax is eroding trust <\/a>in the pensions system and risks making a bad situation worse.\u201d<\/p>\n Resist short term changes<\/p>\n The potential cut could also damage the government\u2019s economic growth ambitions, with investment from domestic pension funds expected to play a major role.<\/p>\n This includes the Mansion House Accord, a voluntary agreement which saw 17 UK firms agree to channel more funds into private assets, as reduced contributions would limit funds available to invest.<\/p>\n The ABI is urging the Chancellor to move away from short-term tax rises to fill the public finance coffer, arguing it will ultimately \u201cundermine long-term financial security.\u201d<\/p>\n Braun said: \u201cWith so many people already retiring without enough savings, we should be encouraging saving, not making it harder.<\/p>\n \u201cWe need clear, consistent government policy <\/a>that gives people confidence to plan for the future, so pensions deliver on their core purpose.\u201d<\/p>\n \t\t\t\t\tRead more<\/p>\n