An expert has issued two pieces of crucial advice to savers after Rachel Reeves announced in her Budget that she would raid Brits’ pension savings. From April 2029, the amount that is exempt from national insurance will be capped at £2,000 a year for employee contributions made via salary sacrifice – when an employee agrees to reduce their gross salary or sacrifice a bonus so that their employer pays the same amount into their pension. It was one of a host of fiscal changes announced by Ms Reeves designed to raise additional revenue.
Andrew Prosser, Head of Investments at InvestEngine, said the change will not matter much to those earning £40,000 and contributing 5% of your salary, as they are “well within the limit”. He added: “But for higher earners, the impact is bigger and over decades, and when taking into account compounding investment growth, it can significantly reduce someone’s retirement pot.
“Employers may also scale back contributions, adding another hit.”
He then provided two tips for savers. Mr Prosser said: “To counteract this, people will need to review their workplace pension and maximise employer contributions wherever possible, and consider topping up using any remaining annual allowance.”
Spouses and civil partners can also “coordinate their allowances and investments to shelter more income from tax”, the expert suggested, thereby helping to protect retirement savings.
Kevin Fitzgerald, UK Managing Director of Employment Hero, said: “Capping the amount people can contribute through salary sacrifice might achieve the short-term goal of raising revenue for the Government but there is a longer-term risk to consider.
“The result would mean people saving less into their pension at a time when people are already struggling to put enough away. This will be concerning to older employees who are already facing a tough landscape when it comes to the job market.”
He added: “For employers, it’s another layer of complexity at a time when businesses need to be supported to drive the employment growth and productivity which ultimately leads to long-term revenue for the Government.
“It’s not just about costs going up, payroll becomes more complicated because NI will need to be applied differently above the cap – it won’t be straightforward, which will add yet another admin burden on top of payroll teams.
“Small businesses need clarity, and employees need support in planning for their futures while continuing to work and contribute, this move risks achieving neither of those things.”
The Chancellor also said that income tax thresholds would continue to be frozen, resulting in 780,000 more basic-rate, 920,000 more higher-rate, and 4,000 more additional-rate income tax payers in 2029/30 as earnings increase over time.
So-called “fiscal drag” means people are dragged into paying 20% income tax if their earnings rise above £12,570, with the 40% rate from £50,271 and the 45% band from £125,140.
Ms Reeves has been accused of breaking Labour’s manifesto promise not to levy more taxes on working people.
Earlier this week, she insisted that taxes were being kept at “an absolute minimum on ordinary working people”.
She added: “You’re not going to write my obituary today.”
The Prime Minister, Sir Keir Starmer, said the Budget “asked everybody to make a contribution” in order to protect public services and help people struggling with the cost of living.
