British employees have been cautioned that their retirement savings might be tens of thousands of pounds lower ifRachel Reeves presses ahead...
British employees have been cautioned that their retirement savings might be tens of thousands of pounds lower ifRachel Reeves presses ahead with a Budget raid.
The Finance Minister is said to be considering capping the amount employees can contribute from their wages to their retirement accounts without incurring National Insurance charges.
It is believed this could generate as much as £4 billion as Ms Reeves works to address a multi-billion pound deficit in public finances.
National Insurance is collected at a rate of 15 percent from employers and 8 percent from employees earning below £50,270, while 2 percent is applied to income exceeding this amount.
A study conducted by the Confederation of British Industry (CBI) indicated that only a small number of companies would take on the expenses if salary sacrifice arrangements were eliminated, or if National Insurance contributions exceeded a new limit.
The CBI did not disclose the names of the companies that participated, but among the businesses that received the survey were DHL, Shell, NatWest,Tesco and BAE Systems.
Almost three-quarters (74 percent) of companies stated they would not raise their employer contributions to compensate for employees' reduced contributions due to paying National Insurance.
Just 13 percent indicated they would increase their contributions to counter the new tax obligation.
Rain Newton-Smith, the CBI's chief executive, stated to theSunday Times that Ms Reeves now faced the possibility of 'increasing the cost of hiring workers' once more.
At her initial Budget in October of last year, the Chancellor increased employers' National Insurance contributions (NICs).
Ms. Newton-Smith stated, "The changes to National Insurance Contributions last year have already led some businesses to cut staff and reduce investments, and a 'stealth tax' on pensions could have a similar effect."
It would be especially challenging for employers who distribute their NICs savings to employees, an action that enhances pension funds and eases the load on the state in the long run — this is why companies have stated it's "a tax on doing the right thing."
The Government's own Pension Commission is currently examining ways to tackle insufficient retirement savings.
Implementing a myopic approach to generating income at this time would hinder its efforts and may result in higher expenses over time.
A CBI study shows that a 22-year-old earning the average salary of £37,382, planning to retire at the standard state pension age of 68, and contributing 9 per cent of their income each year to a pension, would have £223,297 upon retirement.
If an employer decreased their contribution by 1 percent, the pension fund would amount to £198,486 at retirement, representing a drop of nearly £25,000.
The decrease would be more significant for individuals in the higher tax bracket, who have incomes exceeding £50,271.
A firm that participated in the CBI survey referred to an inspection of pension salary sacrifice programs as "a hidden tax that penalizes businesses for assisting individuals in saving for their retirement."
One person stated it was a "bad plan that would affect employees' retirement funds and complicate future savings at the worst possible moment."
Read more- Could Rachel Reeves' tax reform put pension funds at risk, as specialists caution that higher employer national insurance contributions might generate an astonishing £17 billion?
- Could higher National Insurance rates significantly impact employers' pension contributions, endangering retirement savings?
- Could a new National Insurance charge make private sector employees £303,000 worse off at retirement, while public sector pensions remain unaffected?
- Is Rachel Reeves' contentious pension tax plan causing a significant £2 billion impact on private sector employees?
- Is Chancellor Rachel Reeves considering a massive tax increase on employer pension contributions that might resemble the notorious 1997 Brown incident?
