I fear Rachel Reeves will commit political attack on work pensions in Budget, says JEFF PRESTRIDGE

Forgive me. In the event you or your youngsters are pension savers, or you could have grandchildren but to leap on the pension ladder, I’m in peril of spoiling your Sunday.

So when you’re having fun with a fry-up and even treating your self to brunch at your native Cote Brasserie (I like to recommend the smoked salmon and scrambled eggs), have a fast gulp of espresso, take a deep breath, after which (PLEASE) learn on.

What I’m about to say is essential and has implications to your monetary future and that of family members.

Right here goes. I’ve a concern, a horrible concern, that Chancellor of the Exchequer Rachel Reeves is about to commit the largest political assault on our work pensions since 1997 when Gordon Brown launched a devastating £5 billion annual tax raid on them.

If it occurs – a pernicious tax on the contributions employers make into our work pensions – the results will likely be as dire as Brown’s assault, which led to the demise of most ultimate wage pension plans that ‘assured’ staff a retirement revenue primarily based on years labored and their wage at retirement.

The present Chancellor may have morphed into the pension-destroying Brown of 27 years in the past.

To chop to the chase, any pension tax on employers within the Finances will critically stymie the financial savings behavior on this nation.

It’ll make it tougher for us, our kids and grand-children to construct wealth which we will draw on in later life to see us via retirement.

Overdramatic? Sensationalist? No. With Reeves now trying to elevate as much as £35 billion of additional annual tax revenues from her Finances on Wednesday week, it’s apparent to all that she has our pensions firmly in her sights (in addition to any capital good points made on share gross sales and the cash that we intend to go away to family members). 

So come October 30, our proper to take tax-free money from our pension is prone to be curbed.

At present we will withdraw 25 per cent of our pension fund tax-free, often from age 55, topic to a restrict of £268,275. However Reeves is minded to slash the cap to £100,000, a transfer which might disrupt the monetary plans of many who had earmarked their tax-free money for a selected function (for instance, to repay a house mortgage).

There may additionally be restrictions on how a lot we will shovel into our pensions yearly with out dropping the enhance of tax aid on contributions. At present the annual most stands at a fairly beneficiant £60,000.

But, unwelcome although each these measures could be, particularly any financial cap placed on tax-free money, it is the pensions tax on employers that I imagine may have much more cataclysmic penalties. An insidious tax to match the insidiousness of Brown’s pensions tax bombshell in 1997.

If Reeves needs to go for broke, she might abolish the Nationwide Insurance coverage (NI) exemption that employers take pleasure in on the contributions they make into the pension pots of their staff.

In mild of the Authorities’s want to elevate as a lot further tax income as doable to fulfill its extravagant spending plans for the ailing Nationwide Well being Service – and to finance inflation-busting pay rises for tens of millions of public sector staff – it looks like a no brainer so far as the Chancellor is worried.

Final month, the Left-wing Decision Basis, whose mission is to enhance residing requirements of these on low-to-middle incomes, described this employer exemption from NI on pension contributions as ‘vital and pointless’. 

Particularly so, it argues, given many of the remuneration that staff obtain – together with the contributions they make into their pensions – attracts NI at a fee of 13.8 per cent.

How a lot such a transfer would rake in varies in response to which think-tank you hearken to. The Decision Basis estimates that extending NI to employer pension contributions would offer Reeves with further annual tax revenues within the area of £12 billion web.

The Institute for Fiscal Research (IFS) says it could elevate £17 billion a 12 months. Like Decision, it believes employers are getting too good a deal, calling their exemption from NI ‘beneficiant’ and ‘opaque’.

Although you can argue whether or not such a tax seize breaches Labour’s manifesto pledge to not enhance the charges of revenue tax, NI and VAT (the Institute for Fiscal Research thinks so), monetary specialists imagine it’s the equal of low-hanging fruit for the revenue-hungry Chancellor.

‘There aren’t any simple selections for Reeves,’ says Tom Selby, director of public coverage at wealth supervisor AJ Bell, ‘however Nationwide Insurance coverage aid on employer pension contributions could possibly be an interesting goal for a Chancellor with restricted choices out there.’

Interesting although it is likely to be to the Chancellor, such a transfer could be vastly damaging to companies, the financial system and, in fact, savers.

For employers it could ramp up the price of offering pensions to staff, which they’re legally obliged to supply underneath so-called auto-enrolment guidelines.

The minimal contribution fee underneath auto-enrolment is eight per cent (together with tax aid). That is primarily based on a employee’s annual earnings of between £6,240 and £50,270 with not less than three of the eight per cent coming from the employer. However many employers, particularly large corporations, go the additional mile and enhance their contributions if a employee chips in additional.

Sadly, any NI tax on employer pension contributions would power most corporations to have a look at methods of mitigating this. It could possibly be achieved by conserving a good lid on labour prices – for instance, being much less beneficiant with pay rises or trimming their workforce.

The Federation of Small Companies has already warned that including NI to employer pension prices could be one certain approach of ‘shrinking small enterprise employment much more in 2025’.

However extra doubtless, any NI tax would end in many corporations paring down their pension generosity to the minimal requirement underneath auto-enrolment. For pension savers of their 20s and 30s, this is able to make it a lot more durable for them to build up a significant pension fund.

Even now, about half of staff will not be saving sufficient for his or her retirement. This proportion will rise considerably if Reeves hits employers with the NI pension tax.

Just a few days in the past, the Pensions And Lifetime Financial savings Affiliation issued analysis indicating most staff imagine the minimal total contribution for office pensions ought to rise from eight per cent to 12 per cent – with employers paying not less than half.

Sadly, if Reeves morphs into Brown on October 30 and launches an NI raid on employers’ pension contributions, there may be little likelihood of those needs being met.

David Lane, chief government of pension supplier TPT Retirement Options, says: ‘If the Authorities provides Nationwide Insurance coverage to employer pension contributions, it could be unwelcome information for employers and pension savers.’

Unwelcome? No, it’s going to be a catastrophe on a par with Brown’s 1997 pension tax raid.

Do you agree or disagree? E mail me your ideas at jeff.prestridge@mailonsunday.co.uk