Pension tax relief changes reportedly dropped
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The Treasury is reportedly no longer considering changing pensions tax relief, following speculation that a flat rate of tax relief might be on the table as the chancellor is seeking to raise taxes without touching income tax, national insurance or VAT.
The Times on Sunday reported that Rachel Reeves has backed away from changing pensions tax relief because of the impact it would have on public sector workers who have just received a pay rise.
Pension providers have welcomed the news. Mike Ambery, retirement savings director at Standard Life, said while changes to income tax relief could be a revenue raiser they come with challenges.
They would be “highly complex” to implement, he claimed, and have “political downsides” because they affect public sector workers in particular.
“The chancellor will be assessing many ways of raising revenues and whether pensions will feature prominently in the Budget remains to be seen, but there are other aspects of the system that would pose fewer logistical issues and come with fewer strings attached,” Ambery said.
Changes to pensions should be part of the pensions review and seen in the round given their long-term nature, he added.
Aegon’s pensions director Steven Cameron said: “A flat rate of relief of say 30% would have been a boost for basic rate taxpayers, giving them extra support from government. But higher and additional rate taxpayers would likely have faced a double whammy – less generous tax relief on their personal contributions and a new tax bill linked to employer pension contributions.”
Given the more generous pension contributions that go into defined benefit schemes, public sector workers would have faced a tax hike that “would not go down well to put it mildly”, Cameron said, adding that a carve-out for public sector DB would be equally controversial.
Pensions tax is still expected by many to feature in the Autumn Budget on 30 October, with the Treasury potentially targeting the current 25% tax-free lump sum, or bringing defined contribution pensions into scope for inheritance tax.
The late timing of the Budget and lack of clarity about where the government might raise tax has led to higher earners withdrawing their pension earlier than planned, according to the Financial Times on Friday.
Should the Budget be published sooner to quell speculation?
