Under the current rules, employees can put up to £60,000 a year into their pension through salary sacrifice. They get tax relief at their usual income tax rate, and neither they nor their employer pay National Insurance on these contributions.
This downward trend follows on from research by the ABI and the Reward and Employee Benefits Association (REBA) last year, which found nearly half of employers that pay staff more than the minimum pension would consider reducing their contributions if the Chancellor introduced National Insurance (NI) taxation on employer pension payments.
Beyond the risk to savers, lower pension contributions mean less money invested to drive UK economic growth, given that pension firms are among the UK’s largest investors.
Yvonne Braun, Director of Policy, Long-Term Savings, at the ABI commented: “It’s worrying that so many people would cut their pension contributions if the government reduced tax relief in the Budget. These findings point to a deeply concerning ‘double whammy’, with almost half of employers saying they’d also lower their contributions if costs rose. This isn’t just a problem for lower earners – the government’s own data shows middle and higher earners are most at risk of falling short of an adequate retirement income. The Chancellor must resist short-term tax rises that undermine people’s long-term financial security. With so many people already retiring without enough savings, we should be encouraging saving, not making it harder.”
Low levels of consumer trust
A lack of clarity and continued speculation over changes are harming people’s overall confidence in the system. Just one in four (26%) adults feel confident about saving for retirement amid speculation about potential reforms, and nearly half (46%) aren’t confident government plans for pensions will positively impact their retirement.
Thinking about their retirement overall, 38% of savers don’t feel confident they will achieve their desired standard of living at retirement. This figure rises even higher among women, to 44%.
Yvonne Braun continued: “In the government’s own words, ‘we are currently on course for tomorrow’s pensioners to be poorer than today’s’. The constant speculation about changes to pensions tax is eroding trust in the pensions system and risks making a bad situation worse. Instead, we need clear, consistent government policy that gives people confidence to plan for the future – so pensions deliver on their core purpose: providing financial security in later life.”
|
