Amid the frequently repeated references to the £22bn ‘blackhole’ in the public finances and warnings from the Prime Minister of a ‘painful’ Autumn Budget, it would appear that tax relief on pensions may be another area the Government seeks out to raise money.
We know Labour have had their eyes on pensions reforms. Their manifesto for the General Election stated: ‘We will also undertake a review of the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets.’
So, will we discover more about the scope and detail of the review and what it means for tax relief on Budget day?
And one key question many pension and tax experts are asking: will the Chancellor scrap 25% pension tax-free cash?
It’s currently a popular perk that most retirees can take advantage of.
But, as Rachel Reeves looks for ways to increase revenue for the Treasury, it could be a target. Perhaps it will be reduced to 20% or axed completely?
Could the amount of tax-free cash also be limited much more? Currently there’s a maximum of £268,275 you can take tax free.
One pensions guru – the former pensions minister Steve Webb – told the Telegraph newspaper that there is ‘widespread concern’ among the public about the potential changes.
The report claims ‘Britain’s pension industry is facing a stampede of savers attempting to withdraw lump sums from their retirement pots.’
Mr Webb said: ‘Not unreasonably, those who are aged 55 or over are tempted to ‘crystallise’ their pensions now to get hold of their 25pc tax-free cash, and this surge in interest is likely to have put pressure on pension schemes and pension providers.’
In terms of pension tax relief, if the Chancellor took the option to reduce it to 20% that would mean be no change for basic-rate taxpayers. Not so for higher and additional-rate taxpayers, however. It would represent a big cut for them as they currently can get 40% and 45% relief on their pension contributions.
Some commentators have suggested there could be a flat rate of 30% instead.
Steven Cameron, Pensions Director at Aegon, wrote: ‘Moving to a flat rate of 30% would be good news for basic rate and non-taxpayers who would get an extra Government top-up every time they contributed to their pension. But this would be at the expense of higher and additional rate taxpayers who would get a less generous top-up than at present.’
With so many permutations on the table, we’ll have to wait to see what unfolds. In the meantime, if you need help understanding tax relief on your pensions or retirement planning guidance, give our team a call.
