Treasury comes under pressure from MPs on pensions tax response
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The Treasury has been told to provide a revised response to a petition that calls on the chancellor to put in place a pensions tax ‘lock’. Ahead of the Budget on 26 November, the Society of Pension Professionals has also written to all MPs to lobby against any changes to salary sacrifice. Meanwhile, politicians and experts are ringing alarm bells over IHT on pensions.
The petition with over 20,630 signatures called on the chancellor to promise not to change the tax-free lump sum or relief given on contributions, amid wider speculation that pension salary sacrifice could be capped or abolished.
It was started by investment platform AJ Bell, which has shared the response of the Petitions Committee. The MPs said the committee felt the government’s response “did not respond directly to the request of the petition. They have therefore asked the government to provide a revised response.”
In its initial response, the Treasury said it does not comment on proposed tax changes or tax-related speculation ahead of Budgets and then pointed to the pension schemes bill and the new Pensions Commission, even though tax is outside the scope of both.
AJ Bell has argued that pension tax speculation preceding Budgets erodes confidence in long-term saving and can lead to people taking poor decisions, which are sometimes irreversible.
The firm’s director of public policy, Tom Selby, said about the Treasury: “Given it previously indicated that the [Pensions] Commission would take the lead on the future of the UK’s pension system, it shouldn’t be too much to ask for the chancellor to at least promise there will be no political tinkering before the Commission reports.”
A pensions tax lock “would also likely give the government a much-needed positive headline ahead of the Budget, as well as neatly complementing Reeves’ stated aim of boosting pension adequacy and encouraging investing in the UK stock market over the long term”, he added.
Separately, the Society of Pension Professionals has written to all 650 MPs to warn of what it calls “the dangers in reducing or removing salary sacrifice arrangements for pension contributions”.
The SPP said any change would lead to “upheaval” for about a third of private sector employees and almost 10% of public sector workers who save through such arrangements.
Steve Hitchiner, who chairs the SPP’s Tax Group, said: “Changing salary sacrifice arrangements would lead to a reduction in take home pay for millions of employees who are saving into a workplace pension, with the greatest impact for those earning less than £50,284 a year. It would also represent another sizeable cost to employers, despite the chancellor’s public commitment against this, and would undermine the critical role that employers play in supporting and promoting good quality pension saving vehicles.”
Speculation has been mounting that the Treasury could be looking at scrapping or at least capping salary sacrifice ever since research looking at options around this was published by HMRC earlier this year. An increase in employer national insurance contributions in the last Budget has made salary sacrifice more attractive for employers.
The petition with over 20,630 signatures called on the chancellor to promise not to change the tax-free lump sum or relief given on contributions, amid wider speculation that pension salary sacrifice could be capped or abolished.
It was started by investment platform AJ Bell, which has shared the response of the Petitions Committee. The MPs said the committee felt the government’s response “did not respond directly to the request of the petition. They have therefore asked the government to provide a revised response.”
In its initial response, the Treasury said it does not comment on proposed tax changes or tax-related speculation ahead of Budgets and then pointed to the pension schemes bill and the new Pensions Commission, even though tax is outside the scope of both.
AJ Bell has argued that pension tax speculation preceding Budgets erodes confidence in long-term saving and can lead to people taking poor decisions, which are sometimes irreversible.
The firm’s director of public policy, Tom Selby, said about the Treasury: “Given it previously indicated that the [Pensions] Commission would take the lead on the future of the UK’s pension system, it shouldn’t be too much to ask for the chancellor to at least promise there will be no political tinkering before the Commission reports.”
A pensions tax lock “would also likely give the government a much-needed positive headline ahead of the Budget, as well as neatly complementing Reeves’ stated aim of boosting pension adequacy and encouraging investing in the UK stock market over the long term”, he added.
Separately, the Society of Pension Professionals has written to all 650 MPs to warn of what it calls “the dangers in reducing or removing salary sacrifice arrangements for pension contributions”.
The SPP said any change would lead to “upheaval” for about a third of private sector employees and almost 10% of public sector workers who save through such arrangements.
Steve Hitchiner, who chairs the SPP’s Tax Group, said: “Changing salary sacrifice arrangements would lead to a reduction in take home pay for millions of employees who are saving into a workplace pension, with the greatest impact for those earning less than £50,284 a year. It would also represent another sizeable cost to employers, despite the chancellor’s public commitment against this, and would undermine the critical role that employers play in supporting and promoting good quality pension saving vehicles.”
Speculation has been mounting that the Treasury could be looking at scrapping or at least capping salary sacrifice ever since research looking at options around this was published by HMRC earlier this year. An increase in employer national insurance contributions in the last Budget has made salary sacrifice more attractive for employers.
Concern over impact of pensions IHT
Pensions have been in the sights of the Treasury of late as it seeks to avoid raising the main three taxes. At the last Budget, unused pensions were brought into scope for inheritance tax from April 2027. This has led to much debate about how to implement this. HMRC U-turned on its initial proposal to make pensions administrators responsible. Instead, the burden of finding pensions, reporting and paying to deadline will now fall on personal representatives, often grieving family members.
On Monday, industry representatives, including former pensions ministers Sir Steve Webb and Baroness Ros Altmann, warned the Finance Bill Sub-Committee that it will be difficult or impossible for families to know where a person had pensions and then make a payment within six months. This is because there are millions of lost pension accounts, documents are more often digital than in paper form, and the pensions dashboards will go live without third-party access.
The fact pension funds have discretion on who they think the beneficiary should be will also lead to delays, which some predicted is likely to lead to a large number of interest charges. Baroness Altmann said there will also be unnecessary work for millions who have pension pots but where it is then found that no IHT is due. She called the pension burden on bereaved families "wholly disproportionate", adding: "Nobody would want to be an executor or PR once they realise what these new rules mean."
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