Today’s Times reports that plans to reform pensions tax relief for higher earners as part of the Budget have been reconsidered.
Commenting on reports that the Chancellor has dropped plans to reform pension tax relief 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. Firstly, they would by highly complex to implement and secondly, they come with political downsides given their knock on implications for 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.
“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.”
Also, sharing his comments following reports that Rachel Reeves is set to be dropping rumoured plans on pension tax cuts, Tom McPhail, Director of public affairs at the lang cat said:
“It’s not surprising to see the Government has had a rethink on cutting income tax relief on pension contributions. It would have broken an election pledge (to not increase income tax); it would have been fiendishly complicated to do and it would have upset millions of public sector workers. More likely now, is that they’ll introduce some form of death tax on unused pension funds (unless passing to a spouse) and perhaps a cut to employers’ relief on National Insurance contributions.”
Claire Trott, Divisional Director of Retirement and Holistic Planning at St. James’s Place said: “We welcome any clarity on speculation ahead of the Budget, as rumours can have a significant negative impact on people’s ability to make informed decisions, often leading to poor outcomes. The reported ruling out of flat rate tax relief isn’t surprising—while it sounds straightforward, past consultations including in 2016, have shown it’s a costly and complex fix, particularly for higher and additional rate taxpayers who would face taxation on employer contributions.
“We would also welcome similar clarity on proposals from some think tanks about reducing the maximum tax-free cash allowance. Speculation around these changes is driving behaviours, which could result in people withdrawing excessive funds from pensions, potentially risking reduced retirement incomes. Moving money from a tax-privileged environment into one where growth and income are taxed, and potentially pushing estates into inheritance tax (IHT) liability, can have significant implications. With the maximum standard tax-free amount close to the IHT nil rate band, many could find themselves crossing tax thresholds they hadn’t anticipated. Decisions shouldn’t be made in isolation, and seeking professional financial advice is crucial to navigating these complexities and avoiding costly mistakes.”
