Debi O’Donovan, editor of Employee Benefits: Tax and NI merger plan debate will run and run

At first glance, last month’s Budget did not contain any unexpected major announcements.

Most points had been heavily trailed or confirmed what we already knew. However, there were a few new nuggets that could have broader ramifications over the coming years and decades, depending on how they play out.

The idea of linking state pension age to longevity demographics could affect generations to come. It appears to be a sensible decision, but then I am not an actuary able to see just how complicated such a change might be in practice. The bottom line for HR types is the vital importance of educating people to save enough so they can retire when they want, regardless of any further rises in the state pension age.

The other announcement that is causing twitches in the industry is the plan to merge income tax and national insurance at some point. When and how this will happen is currently vague (a consultation still needs to take place) and any change is not expected to take place for some years. Even then, it might end up simply being an operational arrangement rather than a full merging of these taxes.

Benefits and reward experts immediately wondered whether such a move would spell the end of salary sacrifice. It is far too early to tell, so all we can do is keep a wary eye on this idea should it ever take hold.

The other area a tax and NI merger may cause politicians to focus on is the varying tax breaks received by different levels of taxpayer. Back in May 2010, now pensions minister Steve Webb, floated the idea of curbing tax breaks on pension contributions to the lower income tax rate of 20%. This issue arose at last month’s Employee Benefits Summit and led to a heated debate – which was “slightly Jeremy Kyle” (said one delegate) as contrasting views on the role of tax were expressed.

We asked two of the key protagonists to put their views in print to allow readers to take part in our online forum. This discussion is far from over – after the Summit debate, I overheard the head of workplace pensions for the Department of Work and Pensions setting up a meeting with pro-flat tax rate panellist Michael Johnson. Perhaps this idea will get more traction than some people would like.

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