Salary sacrifice has also been mooted as something in the firing line, mainly to head off its use by higher earners to overcome the proposed introduction of flat rate tax relief.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said if the chancellor wants to opt for the “full-on smash and grab option” then salary sacrifice and National Insurance are the prime targets.
“He could impose restrictions on salary sacrifice; he could even introduce a tax charge on employer pension contributions.
“Alternatively he could introduce a new National Insurance charge on employer contributions made to pensions of higher earners, in much the same way that those employees earning over the upper earnings limit are currently liable for a 2 per cent contribution.
“There is £15bn up for grabs here and myriad ways he could contrive a new charge without technically having changed pensions tax relief.”
Broadstone’s technical director David Brooks agreed that Mr Osborne may look to amend the savings that salary sacrifice arrangements make – most likely a change to the employer saving or a restriction as to the level of salary sacrifice that can be used; or the annual allowance could be further reduced for everyone from £40,000.
Goodbye to NI
Patrick Bloomfield, another Hymans Robertson partner, said an obvious target to help deficit plugging is the removal of National Insurance relief on employer’s pension contributions, with the government estimating it would raise around £14bn per annum.
“It wouldn’t be a surprising move for a couple of reasons. First, he hasn’t shied away from passing government spending problems on to employers – the most recent example is the living wage.
“Second, using National Insurance is a classic solution to tax raising when there isn’t scope to increase income tax.”
Clearly there are big implications to such a move, admitted Mr Bloomfield. “Businesses would need to prepare to absorb the cost, or they could re-design pensions to accommodate the loss of savings and still give employees an adequate level of retirement income.”
Removing death benefit threshold
Previous Budgets have simplified death benefits taxation, meaning fewer beneficiaries will face a tax charge.
Mr Osborne could have his sights on the area again.
Now that age is the only factor, pensioners are left with a cliff edge at age 75 where benefits go from being tax free to having a charge of up to 45 per cent.
Jessica List, pensions analyst at Suffolk Life, argued that investors cannot understand why age 75 is so significant. “It seems like a pointless barrier that’s been left in place as the legislation has evolved. It would have been much closer to the average life expectancy when it was introduced.