On bringing pensions under IHT he said: “This change will only affect a small number of people. In all honesty, the tax-exempt status of inherited pensions was always politically difficult to defend.”
Hike in employer NICs
The chancellor refrained from reversing cuts to employee national insurance brought in by the previous government but, as had been expected, targeted employers instead.
From April, employers will see their NICs payments increase by 1.2 percentage points, from the current 13.8 per cent to 15 per cent.
The secondary threshold at which they start paying NICs for employees was reduced at the same time, from £9,000 to £5,000, a move that made some MPs gasp.
In total Reeves said the measures would boost government coffers by £25bn per year by the end of the forecast period.
The move will undoubtedly hurt employers but it could boost the attractiveness of alternative schemes, such as salary sacrifice.
Jon Greer, head of retirement policy at Quilter, said: "For many employers, particularly those operating on tight margins, this increase in NI is likely to prompt a re-evaluation of salary structures and potential pay rises.
"Salary sacrifice schemes where employees voluntarily reduce their taxable income in exchange for benefits like additional pension contributions or even cars or bicycles could become increasingly attractive.
"By leveraging these schemes, employers can reduce their NI liability while providing employees with enhanced retirement savings, making them an appealing option in an environment of rising costs. This therefore might turbo charge businesses application of these types of schemes."
However, he warned there was a risk that businesses may choose to retain some of the NI savings from these schemes rather than passing the full benefit onto employees.
"This could lead to a situation where the intended boost to employee retirement savings is partially offset by employers managing their own cost burdens.
"Meanwhile, for those businesses that don’t adopt such schemes, the increased costs could dampen wage growth and limit hiring, with a knock-on effect on household incomes."
Income tax thresholds to rise again
However, a piece of welcome news was Reeves' announcement that income tax and national insurance thresholds would be unfrozen after their current freeze expires.
The thresholds were frozen by the previous Conservative government until 2028 and there was an anticipation this might be extended.
But Reeves refrained from doing so, meaning from 2028 they will rise again in line with inflation.
Ambery said: “As the personal allowance will now rise beyond £12,570, many lower income pensioners will be relieved to see their state pension income less likely to fall into scope.
"From next April, the state pension alone will be 95 per cent of the personal allowance, leaving pensioners with only £594.40 of headroom before they begin paying income tax.”
