Millions of employees face a poorer retirement if the Chancellor introduces National Insurance taxation on employer pension payments in this month’s Budget, warns the Association of British Insurers (ABI) and the Reward and Employee Benefits Association (REBA).
Employers do not currently pay National Insurance on their pension contributions to their workers’ pensions. However, removing the tax relief on these contributions has been touted as a possible option by Chancellor Rachel Reeves to help plug the £22 billion ‘black hole’ in government finances.
According to a survey by the ABI and REBA, three quarters of employers surveyed pay contributions greater than the auto-enrolment minimum, but 42% of them say they would reduce these more generous contributions and 63% said they would be less likely to increase contributions in the future.
A reduction in investment in other areas of employee benefits, as well as reviewing their future approach, was also covered and only 40% would try to retain current contribution levels despite the increased cost.
The ABI and REBA also expressed concern that the taxation of pension contributions would add to the overall cost of staff as well as reduce the positive impact that pensions have on growth.
Yvonne Braun, director of policy, long-term savings and health & protection at the ABI, said: “We want to see money flowing into pensions to drive growth, and we also want employers to be incentivised to provide good pensions for their workers. These changes would have a negative impact on both. They would also mean lower retirement standards in the future at a time when we’re already not saving enough for the long term.”
Debi O’Donovan, co-founder and director at the Reward and Employee Benefits Association, added: “Employers are the bulwark of the pensions savings system in the UK. To date each government has wisely supported employers to take on this role by applying employers National Insurance contributions relief on employer pensions contributions. This research shows that removing this relief would change employers’ behaviours to be less generous in future, to the detriment of millions of workers.”
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