Pensions tax raid warning as expert says 'loophole' could shut on October 30

Rachel Reeves is expected to target pensions in a potentially roundabout way after assuring other working taxes are safe

With just days to go until Labour’s first budget, Brits are cautiously trying to figure out how best to protect their savings, investments, income and benefits to fend off any changes the Chancellor of the Exchequer Rachel Reeves may make. It’s expected that the “painful” announcement will have some nasty surprises such as the Winter Fuel Payment cuts which have already been implemented.

The Chancellor highlighted that this drastic measure was to help plug the £25billion “black hole” she had inherited from the Conservative government. Experts predict that she’ll turn to workplace pensions to fill this gap.

She has ruled out taxing working age people and isn’t expected to target pensioners further after the Winter Fuel Payment backlash, which turns the crosshairs onto business owners and employers. Some speculation notes the Chancellor could raise the national insurance for employers, which won’t directly affect employees.

Steve Webb, partner at the pension consultancy LCP, thinks the way this will be done is by charging tax on money paid into workplace pensions. He shared with the i: “It could be argued that this is simply closing a loophole where remuneration packages are explicitly structured to minimise NI liabilities.”

Calculations by LCP revealed a 2% introductory rate could raise £2billion through this method, and it’s been suggested that the government may trial this technique before putting into play with a relatively low percentage like 2%. However, a new tax charge of this kind could also see companies reducing their contributions to their employees pensions or potentially even hold people back from getting pay rises to avoid the added national insurance.

Another speculative outcome that could impact savers much more directly according to Morningstar is a flat rate of pension contribution tax relief. At the moment, all workplace pension contributions are completely free of income tax, but a flat rate of 30% has been suggested to ensure people on the basic income tax level still enjoy this benefit while those on higher and additional rates will be paying the government as part of their pension savings.