Pension tax relief reforms scrapped: reports

Chancellor Rachel Reeves has stepped back from plans to introduce a flat rate of tax relief, according to newspaper reports. Today’s Times reports that plans to reform pensions tax relief for higher earners as part of the Budget have been reconsidered. The news comes after concerns were raised about the impact it would have on public sector workers, but there is no news as to whether the Chancellor will look to restrict tax-free cash. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The speculation has not been officially confirmed, but the introduction of a flat rate of relief would have been highly complex, expensive and brought further confusion to an already tangled system.” She said that other options remain on the table – most notably reducing the amount of tax-free cash people can take from their pension. The lump sum allowance was set at £268,275 by the last Government when it removed the lifetime allowance. That meant that if people built up pensions above that previous allowance they would not have access to the 25% tax free lump sum on amounts over the allowance. Ms Morrissey said: “Any move to restrict it further will be unpopular with those planning their retirement with higher levels of saving. The constant moving of the boundaries, so soon after the lifetime allowance was removed makes planning impossible.” She called for clarity for those with pensions below the limit. “Ripping money out of a pension now potentially deprives it of future investment growth and leaves it subject to tax. There’s also the possibility it could be placed in a low interest bank account where its purchasing power gets eaten away by inflation over time.” She said the ongoing speculation about changes to tax-free cash is damaging. “The Chancellor has recognised that businesses need certainty in the taxation environment to make investment decisions. The same is true of our personal finances. The government has left people to make impossible decisions about their investments and pensions. The sooner changes such as raiding tax-free cash, can be ruled out, the more people can focus on the long term again.” Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group said: “Changes to income tax relief are a potentially significant revenue raiser but come with two major challenges. First, they would by highly complex to implement and second, they come with political downsides given their knock-on implications for public sector workers in particular.” He said 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.” He said pensions are long term by their nature and ideally any changes would be considered as part of the government’s upcoming pension and adequacy review, so that the different aspects of pensions system could be viewed in the round. “But clearly there is some pressure on the nation’s finances in the short term which may make this a challenge.”

Pension tax relief reforms scrapped: reports

Related items

News from Twitter