Rachel Reeves’ National Insurance raid risks pushing more workers into a retirement crisis, the boss of a major pension firm has warned.
The Chancellor’s tax raid on businesses means higher earners could miss out on pension contributions as their employers cut back to cover their higher bills, according to the head of one of Britain’s largest workplace pension providers.
Jamie Fiveash, the chief executive of Smart Pension, said higher employer National Insurance contributions (NICs) will also make it harder for the Government to increase minimum auto-enrolment payments because they will be unable to shoulder extra costs.
Ms Reeves’s flagship policy in her record tax-raising Budget on Oct 30 was an increase in employer NICs, which she said would raise £25bn a year.
This was despite Labour’s manifesto promise that “we will not raise National Insurance”.
Although Ms Reeves claimed she met her pledge not to increase taxes “on working people”, the Office for Budget Responsibility (OBR) expects 80pc of the cost of this tax rise will be passed onto workers.
Mr Fiveash warned that the “continuous pressure” on employers could push businesses to reduce pension contributions at a time when Britain already faces a big retirement savings shortfall.
He said: “We’ve got a significant savings gap already and we are heading towards a crisis for people that think they’re saving enough and they’re not.”
Just one in seven workers is making large enough pension contributions to be able to maintain their living standards into retirement, according to analysis by Phoenix, Britain’s largest long-term savings firm.
Workers in the existing auto-enrolment system make minimum pension contributions worth 8pc of their salaries. This consists of a 5pc contribution by the employee and a minimum contribution of 3pc by their employer.
Businesses that give employees contributions larger than 3pc, which are typically in more highly paid sectors, may now opt to cut back as a way to absorb the blow from the NICs rise, while others could forgo planned increases, Mr Fiveash warned.
The pensions industry has long been pushing for the minimum 8pc threshold to be increased to 12pc, but reform will now be even harder, he added.
Mr Fiveash said: “We were hoping what the Government would announce was going to set a timetable for increasing minimum contributions. I expect that now might be delayed because of this. That’s the most disappointing thing.
“We need to get to 12pc and the longer we delay that, the worse that situation becomes.”
On top of the NICs increase, businesses will have to pay for a 6.7pc increase in the National Living Wage announced by Ms Reeves, as well as the costs for Labour’s Employment Rights Bill, which the Government’s impact assessment said will be as much as £4.5bn.
