How likely is it that pension contributions will be taxed in future? ...Middle East

Question: I am currently automatically enrolled into my workplace pension through salary sacrifice, an arrangement which works well for me as it’s simple and saves me money on national insurance (NI) contributions. Are these sorts of arrangements likely to continue given the dire financial situation the chancellor finds herself in?

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As I’ve covered in this column previously, the minimum total contribution from both employers and employees for workplace pensions is 8 per cent (with a minimum of 3 per cent from your employer and 5 per cent from the employee including upfront tax relief) of earnings between £6,240 and £50,270, although many firms offer more generous terms.

Those who fall outside these parameters are still allowed to opt into their company pension scheme on the same terms, but they may not be automatically enrolled.

If you are in a “net pay” pension scheme, your personal contributions are taken from your salary before income tax has been paid. Provided you are earning above the personal allowance of £12,570 per year, after your pension contributions have been deducted, if you are in a net pay scheme, you should receive all of your tax relief automatically.

The other main way to receive tax is relief at source. If your pension scheme operates in this way, you pay contributions from your taxed salary, and you will receive basic-rate tax relief automatically, regardless of your income tax band.

Salary sacrifice

Some employers, including yours, may also offer to pay pension contributions on your behalf via “salary sacrifice” (on top of their normal contributions). This involves giving up a portion of your salary, with your employer instead paying you a “non-cash benefit” – in this case, pension contributions.

One thing to bear in mind when considering salary sacrifice is the impact it might have if you are made redundant. As your salary will be reduced, it is possible your redundancy entitlement will be reduced too. Taking a lower salary could also affect things like maternity and paternity pay, mortgage applications and some state allowances.

As with most tax benefits, there will inevitably be rumour and speculation ahead of the Budget, but if there are any changes, these should only affect future contributions to salary sacrifice arrangements.

Any reform along these lines would also likely face significant pushback from employers who have already had to deal with rising costs following the hike in employer NI rates.

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