Tax/NI merger would be ‘spectacular own goal’

Merging income tax and National Insurance (NI) would dramatically reduce pension saving and private protection take-up, Jelf Employee Benefits has warned.

George Osborne announced during the last budget the government will consult on combining tax and NI, but he reassured MPs any reform would not impose NI on pensioners.

However, Steve Herbert, head of benefits strategy at Jelf, warned any combination of tax and NI would render salary sacrifice impossible.

"The merger of tax and NI is a huge hammer blow to salary sacrifice and we do not believe the government has properly considered the consequences for employees, employers or indeed its own objectives," said Herbert.

"On the one hand the Department for Work and Pensions is seeking wide pension reform to encourage a savings culture and counter the savings gap, whilst on the other the Treasury is looking to reduce one of the most attractive and acceptable methods of funding a pension."

Herbert also warned combining tax and NI would increase the risk gap, as many employees use salary sacrifice to pay for protection.

He added any reduction in private pension saving or insurance will mean greater reliance on the state, meaning there will be no overall saving.

Jelf's concerns echo those of other employee benefit consultancies (EBCs), who voiced their concerns after the budget announcement was made.

A merger could cause complications particularly with critical illness cover, which does not have the same tax and NI treatment, Robin Hames, head of technical at Bluefin said.