Chancellor's Pension Reforms May Adversely Affect Millions on Modest Incomes
# Rachel Reeves's Pension Changes Could Leave Millions on Modest Incomes Worse Off
Chancellor Rachel Reeves is facing increasing scrutiny over her planned pension reforms, which could harm individuals with modest incomes while addressing tax benefits enjoyed by higher earners. The changes have sparked concerns that millions who rely on salary sacrifice arrangements could be adversely affected.
The proposed reforms aim to alter how pension contributions are taxed, with implications for both employers and employees. The Office for Budget Responsibility (OBR) noted that the effects of these changes are "highly uncertain, given the various channels through which employers and employees can respond." This raises significant doubts about the intended outcomes of Reeves's strategy.
There are fears that employers might adjust their compensation structures. The OBR document suggests, "Employers could look to formalise salary sacrifice arrangements to replicate the tax benefits of salary sacrifice by increasing contributions in place of wage growth or lowering contractual salary in exchange for higher employer contributions." Such shifts could potentially lead to lower take-home pay for workers, negating the benefits of the reforms aimed at providing greater support.
Despite the criticism, a Treasury spokesman defended the reforms, stating, "This isn't new information – the costing note published at Budget included the behavioural impacts of the measure. Our reforms protect 95% of workers earning under £30,000 who use salary sacrifice, while tackling costs that were set to treble to £8 billion as high earners piled in bonuses tax-free." This highlights a government attempt to balance financial responsibility with the need to support lower-income earners.