Top News

Rachel Reeves is expected to limit how much workers can pay into pensions tax-free in the upcoming Autumn Budget. The move would mean hard-working savers could lose £22,000 as the Chancellor aims to raise a quick £2billion.

Ms Reeves is poised to target salary sacrifice, which is currently not subject to National Insurance (NI). The popular perk allows workers to give up a slice of their gross pay in return for their employer paying the equivalent amount into their pension. However, the Chancellor has plans to cap how much you can save without paying National Insurance.

As reported by The Sun, the plans would force workers to pay the full rate on any contributions they make over £2,000 a year. This means a worker earning £50,270, paying 6% of their salary, would be £80 worse off a year.

Analysis from pension experts AJ Bell shows that workers will lose a significant amount of money in the long term. A 35-year-old saver, earning £40,000 and with £30,000 in their pot, would see their final pension sum slashed by a whopping £20,101.

Meanwhile, someone on £50,000 would lose out on £22,060. As the number increases as you earn more, those on £100,000 face a £49,682 deduction in their savings.

As the salary sacrifice isn't subject to NI, both employers and employees save money. Many companies reinvest their savings in staff pensions, which boosts employee contributions.

According to Rachel Vahey, head of public policy at AJ Bell, firms use this to "incentivise employees". She said: "This becomes a win-win for both parties as employers cut their NI bill while employees get an added boost to their pension."

However, the move from Ms Reeves could kill off the popular schemes. Mrs Vahey explained the changes "add significant complexity" and wipe out the benefits, "it is possible some employers will scrap their salary sacrifice scheme" altogether.

The Society of Pension Professionals (SPP) recently wrote to MPs urging them to block the move. They warned it will significantly impact millions of hard-working Brits.

Steve Hitchiner, chair of SPP, said: "Changing salary sacrifice arrangements would lead to a reduction in take home pay for millions of employees who are saving into a workplace pension, with the greatest impact for those earning less than £50,284 a year.

"It would also represent another sizeable cost to employers, despite the Chancellor's public commitment against this, and would undermine the critical role that employers play in supporting and promoting good quality pension saving vehicles."