Key Highlights
- Rachel Reeves warns against reducing salary sacrifice perks for private sector employees.
- The DWP analysis reveals that 4.6 million people are not saving enough to afford the minimum standard of living in retirement.
- Cuts to tax benefits on salary sacrifice schemes could widen the pensions gap between public and private sector workers.
- Experts argue that such changes would be catastrophic for workers’ pension pots.
Rachel Reeves Warns Against Pensions Tax Raid Amidst Retirement Crisis
The chancellor, Rachel Reeves, is warning against plans to reduce salary sacrifice perks, as a savings crisis among retirees is laid bare. These plans, aimed at private sector employees, could significantly impact the retirement savings of millions facing financial difficulties in their golden years.
Retirement Woes Exposed
A recent analysis from the Department for Work and Pensions (DWP) has revealed that one in three workers face a “disappointing retirement” if the triple lock is scrapped. According to DWP data, approximately 4.6 million people are not saving enough to cover even the minimum standard of living set out by the industry body Pensions UK.
The situation worsens when considering alternative pension systems proposed by the DWP. If the triple lock were replaced with a less generous system, the number of underfunded workers could soar above 11 million, according to former pensions minister Steve Webb’s analysis based on freedom of information requests.
Triple Lock Under Scrutiny
The triple lock ensures that the state pension rises each year by the highest rate between wage growth, inflation, or a fixed 2.5 percent. In May last year, DWP found that linking the state pension to consumer prices index (CPI) would leave 11.7 million people unable to meet Pensions UK’s minimum living standard. If linked to average earnings, six million workers would fall short.
Webb emphasizes: “These shocking figures reveal that the true state of undersaving for retirement is far greater than previously admitted.” He argues that the budget next month should not undermine efforts to boost workers’ retirement pots.
Cuts and Concerns
Rachel Reeves is reportedly considering an overhaul of salary sacrifice schemes, which allow employees to give up part of their pay to be put into their pension. The money comes out before wages are taxed, reducing national insurance contributions. However, experts warn that capping the amount you can sacrifice without incurring national insurance at £2,000 a year could widen the pensions gap between public and private sector workers.
Rees-Mogg, an industry expert, states: “This policy is likely to undermine trust in the pension system.” He highlights the risk of such changes harming long-term financial health for some workers. The move could also lead individuals to make risky financial decisions due to uncertainty about their future savings.
Conclusion
The proposed changes to salary sacrifice schemes are raising significant concerns among policymakers and industry experts alike. As millions face a looming retirement crisis, the government must carefully consider the potential impacts of any reforms on workers’ financial futures.
