The FT has reported that Chancellor Sajid Javid is weighing up a big tax raid on higher earners in his March Budget, including cutting pension tax relief to 20% - https://www.ft.com/content/09e535b8-4902-11ea-aeb3-955839e06441?emailId=5e3dd989bddb6b000434a464&segmentId=ce31c7f5-c2de-09db-abdc-f2fd624da608
Tom Selby, senior analyst at AJ Bell, comments:
“Barely a Budget goes by that the Treasury isn’t rumoured to be eyeing radical pension tax relief reform. This constant speculation risks altering investor behaviour and damaging confidence in the stability of the system. Ironically, in the short-term such stories will inevitably cost the Exchequer cash as savers pile into pensions to make the most of tax relief while it is still there.
“If there are to be reforms to the pension tax framework, they must not risk harming the fragile savings culture that is being developed in the UK. We believe the focus at the moment should be improving the existing system rather than burning the whole edifice to the ground.
“The annual allowance, for example, has become ridiculously complex, with three different versions for people to navigate. Moving to a single annual allowance for defined contribution savings would represent a significant positive step in simplifying pensions. There should then be an evaluation of whether the annual allowance is an appropriate mechanism for controlling defined benefit pension costs given the problems it has caused NHS workers in particular.
“One option worth considering, and flagged previously by the Office of Tax Simplification, would be to control DC pensions with a single annual allowance and DB with a lifetime allowance. This would radically simplify the rules and remove the unfair punishment against strong investment performance causes by the lifetime allowance in DC pensions.
“Beyond this, there now needs to be an acknowledgement that the lack of clarity about the future of pension tax relief - and the rumour and speculation this causes - needs to be addressed. Savers should be confident the product they commit their hard earned cash to for decades won’t be subject to constant change. If there is to be further reform to pensions taxation, we urge the Government to take a genuinely long-term approach by committing not to make further changes for at least 10 years.”
