- In background documents for today’s Spring statement, it said government would consider reform of tax reliefs and allowances to support a fair and simple tax system.
- There are currently over 1,000 tax reliefs and allowances in existence.
- Government said it would confirm plans ahead of 2024.
- Pensions tax relief is hugely complicated with lifetime and annual allowances in addition to the money purchase and tapered annual allowances.
- Hargreaves Lansdown has called for the money purchase annual allowance to be replaced with anti-recycling rules to enable people who had to access their pensions during the pandemic to rebuild their savings.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
“Buried deep within the Spring Statement documents there was a startling sentence in which the term tax-relief was used alongside the words “fair” and “simple”. The pensions tax relief system can’t be called either of these things with the complex web of rules likely to trip up even the savviest of people.
While some people have an annual allowance of £40,000, for others it can be as low as £4,000 per year.
Reform of the system is long overdue and would be welcomed by the industry and savers alike. If done well it could really incentivise people to make a meaningful contribution to their pension rather than merely supplementing existing savings levels.
Hargreaves Lansdown has recently called on government to reform the Money Purchase Annual Allowance to help those who needed to access their pensions during the pandemic to be able to rebuild their pension when times get better.
With the cost of living continuing to soar the likelihood is older people will increasingly need to access their pension to plug short-term gaps so such reform would be welcome though the text said we are unlikely to see anything imminently. Simplifying the tax system would help people prepare for retirement with more confidence.”
Spring Statement background document BUDGET 2021: Protecting the jobs and livelihoods of the British people (publishing.service.gov.uk)