More than a third (36 per cent) of pension professionals would prefer the government apply national insurance (NI) to employer pension contributions, if pensions need to contribute to overall tax savings, an industry poll has found.

The poll, undertaken at the PLSA Annual Conference 2024, showed that 34 per cent of professionals would rather the government opt to remove the concession for defined contribution (DC) pots to be passed on to anyone free of inheritance tax.

Meanwhile, 20 per cent said they would prefer to move to a single rate of tax relief (not marginal tax), while 8 per cent would rather the government reduce the pension commencement lump sum amount.

However, none of the audience said that they would prefer that all pension contributions be made after tax, and pensions are not taxed.

There has been growing speculation about whether changes to pensions tax could appear in the upcoming Budget, with Chancellor, Rachel Reeves’, previously highlighting a ‘£20bn black hole’ in public finances that needs to be plugged.

Indeed, speaking during the panel session, LCP partner, Steve Webb, said that “raising tax is seen as plucking the goose with the minimum amount of hissing”, suggesting that the Chancellor will be looking to raise as much money, with as little fuss as possible.

But Webb stressed the need to minimise political opposition when making any pension tax changes, suggesting that the new government will have "heard the clock ticking to the next general election already".

Given this, he emphasised the importance of avoiding a complex transition, noting how complicated the abolishment of the lifetime allowance has been, with HMRC still finalising the rules that should have applied from April.

Independent consultant, Jackie Wells, said that while it's evident that some "fundamental" changes to the way pensions are taxed are needed, "that's not going to be simple", also highlighting the changes to LTA as demonstration of this.

Given these complexity concerns, Webb suggested that abolishing higher rate tax-free cash would be "incredibly difficult", as if these changes were done overnight, it could prompt public backlash, whilst introducing transitional protection would delay the funds being raised.

Webb also emphasised the need to consider the impact of any potential tax changes on public sector workers, arguing that this is likely to be a key consideration for the government.

"That's why we think you wouldn't see higher rate relief go, probably wouldn't see cuts in, in the tax-free cash and that's where we ended up with National Insurance on employer contributions," he stated.

Indeed, recent reports suggested that the government has dropped its plans for the introduction of a flat rate of pension tax relief due to concerns about the impact it would have on public sector workers, with changes to NI seemingly becoming more likely.

Wells also suggested that changes to employer NI would be simpler to adopt compared to the other options.

"It's more enduring unless it's done piece meal," she said. "But it does have significant implications for employers, and potentially for employees, and will undoubtedly bring some behavioural change - potentially for pensions in particular.

However, Webb clarified that he is not convinced the government would bring in NI for employer pension contributions at "full whack", suggesting that the government might instead bring it in at 2-3 per cent.

"Everyone would moan, but at 2-3 per cent would anyone change anything? Probably not," he speculated.

"Then in next year's budget, they could increase the rate of employer NI."

---