Rachel Reeves announces £2,000 salary sacrifice cap in budget

Rachel Reeves has announced that salary-sacrificed pension contributions supra an yearly fig of £2,000 are to beryllium taxable to nationalist security charges.

The move, which comes into effect successful April 2029, is expected to rise much than £4bn successful that fiscal year.

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The chancellor said the determination was a "pragmatic step" that would support those connected debased and mediate incomes.

Salary sacrifice schemes for pensions are an statement by which employees tin chose to springiness up a information of their wage successful speech for their leader paying an equivalent magnitude into their pension.

The portion of the wage that is fixed up is presently not taxable to income taxation oregon nationalist security arsenic it is taken retired of a worker's gross wage earlier the taxes are calculated.

The schemes besides payment employers, who bash not person to wage nationalist security connected the magnitude sacrificed by the employee.

Some employers besides take to adhd this redeeming to their employee's pension.

But nether the caller changes, contributions supra £2,000 volition beryllium treated arsenic mean worker pension contributions, and volition truthful beryllium taxable to some leader and worker nationalist security contributions.

The chancellor told the Commons that wage sacrifice for pensions was owed to "treble successful outgo from £2.8bn successful 2017 to £8bn by 2030".

She said the "greatest benefit" was going to "higher earners oregon to those successful the fiscal services assemblage putting their bonuses into pensions tax-free, portion those connected the minimum wage oregon whose employers don't connection wage sacrifice don't payment astatine all".

Ms Reeves said: "This is not sustainable for the nationalist finances, putting unit connected the taxation everyone other pays, and truthful I americium introducing a £2,000 headdress connected wage sacrifice into a pension with contributions supra that taxed successful the aforesaid mode arsenic different worker pension contributions."

She added: "That is simply a pragmatic measurement truthful that people, particularly connected debased and mediate incomes, tin proceed to usage wage sacrifice for their pension without paying immoderate much taxation than they bash now. And to springiness individuals and employers clip to set to these caller arrangements, these changes volition travel into effect successful 2029."

The changes were outlined successful a papers written by the Office for Budget Responsibility (OBR) and released successful error up of Ms Reeves' speech.

The papers said: "The argumentation results successful an summation successful NICs (national security contributions), which is estimated to rise £4.7bn successful 2029/30 and £2.6bn successful 2030/31.

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"The costing assumes that, successful astir cases, worker pension contributions supra £2,000 that were portion of a salary-sacrifice strategy volition go taxable to leader and worker NICs, either due to the fact that they determination to a modular pension strategy oregon proceed successful a salary-sacrifice strategy nether the caller taxation arrangements."

The Society of Pensions Professionals (SPP) said around a 3rd of backstage assemblage employees usage a salary-sacrifice arrangement, compared with astir 10% of nationalist assemblage workers.

It said that portion determination was a £4bn outgo to the authorities successful providing wage sacrifice arrangements - £1.2bn for employees and £2.9bn for employers - determination was besides "widespread designation that this is simply a affirmative concern that incentivises pension saving".

The SPP said the alteration would impact basal complaint taxpayers much than higher complaint taxpayers due to the fact that the main complaint of nationalist security contributions is 8% for employees, but lone 2% connected incomes supra £50,270.

Steve Hitchiner, seat of the taxation radical astatine the SPP, said: "Abolishing wage sacrifice for pensions volition impact the take-home wage of millions of employees - particularly basal complaint taxpayers - and is simply a taxation connected moving people, successful tone if not successful name. It is besides different sizeable outgo to employers and, possibly astir importantly, its removal volition trim pension saving."