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The Treasury is weighing up plans to change pension taxation in a post-Covid "raid" on pensions, the Telegraph writes on Monday. According to its sources, the government is considering
a flat rate of pensions tax relief
lowering the lifetime allowance from currently £1,073,100
taxing employer contributions
Speculation that the government would reduce tax relief for higher earners has been a regular pre-Budget for years. The Treasury has so far refrained from implementing what would be a hugely unpopular measure that would hit mostly Conservative voters, and which would be complex to implement. A consultation on the issue six years ago concluded there was not enough consensus to implement any changes.
Mike Smedley, partner at consulting firm Isio, said although there was a case for wholesale change as the current system is "too complex and inconsistent", any new system faces challenges and would likely take years to implement.
"And the government also has to worry about the thorny issues for public sector pensions, particularly the NHS," he noted, adding: "The worst of all worlds would be cynical tinkering to raise tax without fixing any of the problems. The mooted cut in lifetime allowance is a good example - it has been up and down like a yoyo since it was introduced, with savers left gambling on a future chancellor’s mood at the point they retire.”
Tom Selby, senior analyst at AJ Bell, said given the parlous state of the UK’s finances, further speculation about the future of all areas of government spending was inevitable.
“However, all three of the pension tax reforms apparently in the chancellor’s sights would be hugely risky, hitting directly at heartland Conservative voters and undermining the foundations being laid by automatic enrolment," he said.
