Some recent Budget rumours have been truly jaw-dropping. None more so than the latest suggestion about pensions.
Hurriedly removing National Insurance relief on employer contributions is bad enough, as it could up-end auto enrolment scheme administration, but exempting public sector employers is absolutely astonishing.
Forcing these extra costs only onto private sector employer contributions would worsen our existing two-tier pension system.
Public sector employees already enjoy much better pensions than private sector employers can afford.
This suggested change would widen the disparity, damaging private sector workers pensions, while forcing them and their employers, who will suddenly see their pension costs soaring, to pay for even more advantaged public sector pensions.
Surely, if the Government believes public sector employers cannot cope with ending this relief, it is a clear indication that private sector schemes will struggle and the change should not happen at all.
Abolishing National Insurance relief for employer pension contributions may sound attractive in theory, with estimates of raising many billions of pounds, but in practice it is a minefield which could blow up in employers’ faces.
Such a radical change to a policy which has been embedded in pension schemes for years cannot happen at a stroke.
Without detailed consultations and significant lead times to get new administration in place, it is fraught with unintended consequences.
Millions of auto-enrolment salary sacrifice arrangements may need adjusting, to ensure workers’ take-home pay and pensions are not seriously damaged. Special agreements based on the National Insurance reliefs may need renegotiating. The complexity and time to make the necessary changes should not be underestimated.
I strongly advise the Chancellor against this as the costs and risks seem to have been inadequately appreciated.
This dreadful idea would cause havoc for UK pensions, potentially derail the success of auto-enrolment and further embed inequalities in pension provision for the majority of the UK workforce in the private sector.
