Abolishing salary sacrifice for pensions 'a tax on working people'

There was mounting speculation ahead of the Autumn Budget this week that Chancellor Rachel Reeves would drop the exemption from national insurance for LLPs, effectively levying an extra 15% tax.

This prompted a campaign by the Law Society and other legal groups seeking to persuade Reeves to rule it out.

Law Society president Mark Evans said: ‘Leaders from across the professional services sector came together this month to write to the Chancellor to warn against such a measure and how damaging it would be for the UK economy.

‘The legal sector is already contending with major regulatory changes in anti-money laundering and compliance. Any additional burdens would have created a perfect storm on firms’ ability to invest, hire, and contribute to growth, which could prove damaging to the wider economy.’

Key elements of the Budget included a £2,000 cap on the national insurance threshold for salary sacrifice pension contributions, an extra 2% on tax for income from property or dividends, and the so-called ‘mansion tax’ on homes worth more than £2m.

The imposition of the £2,000 cap on salary sacrifice contributions has prompted dismay.

James Dean, pensions partner at Freeths, said the decision, in the Autumn Budget this week, ‘will be incredibly unpopular across the pensions industry.

‘Introducing this measure from 2029 risks sending the wrong signal at precisely the wrong time. With many people already struggling to save enough for their retirement, this policy could hugely discourage pension savings and undermine long-term financial security.’

Steve Hitchiner, chair of the Tax Group at the Society of Pensions Professionals (SPP), said: ‘Abolishing salary sacrifice for pensions will affect the take home pay of millions of employees—especially basic rate taxpayers—and is a tax on working people, in spirit if not in name.

‘It is also another sizeable cost to employers and, perhaps most importantly its removal will reduce pension saving.’

Contributions above the cap will incur national insurance payments. Reeves justified lifting the exemption by warning costs will triple to £8bn by 2030.