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Employers warn Rachel Reeves over national insurance on pensions

More than two in five employers say they will cut their staff pension contributions where they can if the chancellor introduces national insurance on them in the budget this month.
An informal poll of more than 600 employers found 42 per cent of those that pay more than the statutory minimum would reduce their contributions.
Sixty-three per cent also said they would be less likely to raise pension contributions in future if national insurance became payable on them.
Some employers said that they might have to cut back on other employee benefits, according to the poll commissioned by the Association of British Insurers (ABI) and the Reward and Employee Benefits Association (REBA).
Speculation that Rachel Reeves might impose national insurance on employers’ contributions was triggered last week after Sir Steve Webb, the former pensions minister, said it would be the least politically difficult way of grabbing back some of the £49 billion tax relief afforded to pensions each year.
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Senior Treasury officials have advised against reducing the 40 per cent tax relief on pension savings given to higher earners because it would disproportionately hit state workers, but other areas of pension saving are not thought to be protected.
All employers have to make minimum pension contributions of 3 per cent of staff pay under the auto-enrolment rules, but many pay in far more. Both employers and employees’ contributions currently qualify for national insurance relief.
Yvonne Braun, policy director 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.”
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Applying national insurance at the full rate of 13.8 per cent could yield a net £16 billion for the chancellor, while even a lower rate of 2 per cent would bring in a couple of billion, said Webb, who is now a partner at the pension consultants LCP.
The poll of REBA members by Survey Monkey was conducted in the ten days to October 7 and covered small and large employers together employing three million people. Three quarters of respondents paid more than the 3 per cent minimum.
Baroness Altmann, a former Conservative pensions minister, has branded national insurance on employer contributions as “a truly dreadful idea”.
Other ways that the Treasury could raise more taxes from pensions include reducing the tax-free lump sums that can be extracted, or reducing the favourable treatment of pension pots for inheritance tax.

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