Pension review ‘makes sense’ – Britons urged to ‘make most of system’ amid tax raid fears
It’s been suggested the Treasury could be planning a “tax raid” on pensions this coming autumn, The Telegraph reports. Among three reported measures, one relates to pension tax relief.
Currently, tax relief on pension contributions is set at 20 percent for basic rate taxpayers.
This increases to 40 percent for higher earners, who pay the higher rate of Income Tax.
However, recent reports suggest HM Treasury is now considering a flat rate of tax relief for everyone.
Earlier today, Kwasi Kwarteng, the Business Secretary, was asked about tax rises to cover the huge cost of the coronavirus pandemic.
It comes as the national debt mountain has now reached £2.17trillion.
“I am hopeful as business secretary as you can imagine that we can grow the economy,” he told Sky News.
“That in the past has always been the best way to raise tax revenue… the tax revenue from a thriving economy can pay down some of the debt.”
On the possibility of a raid on pensions reliefs, the Business Secretary said: “I don’t think that is necessarily the way forward.”
Following the reports, Ed Monk, from Fidelity Personal Investing, has suggested some pension savers take action to “ensure they make the most of the system” as it is currently.
Within a blog post on the company’s website, he wrote: “Any of the changes being discussed would face opposition from voters who the Government still wants to keep onside, so it appears very uncertain that any will see the light of day.
“Yet it still makes sense for higher-rate tax payers to review their pension contributions to ensure they make the most of the system as it stands.”
Mr Monk went on to suggest some different options some may want to look at.
“Those saving into a workplace scheme should ensure they are maximising any matched pension contributions from their employer,” he said.
“This may require contributing more than the default minimum into their scheme.
“If you have maximised the help on offer for a work scheme, a SIPP can allow you to take further advantage of the tax breaks on pension saving.”
Becky O’Connor, Head of Pensions and Savings, interactive investor, the flat-fee pension platform, also commented on the reports today.
She said: “We need more not fewer incentives to invest for retirement.
“Tax relief and employer contributions are two benefits that make pensions the best way for most of us to put money aside for the future.
“If the Government chops away at them, workers face poorer outcomes in retirement.
“This could translate into more pressure on public services from a less financially secure older population in years to come.
“The Government should think hard before yanking away some of the few tools people have to look after themselves in old age.
“Although more people now have a workplace pension thanks to auto-enrolment, today’s workers are generally in far less generous pension schemes than those of previous generations because of the wholesale shift from defined benefit schemes, which guaranteed a level of income in retirement, to defined contribution schemes, which do not.
“People are also more switched on to their pensions these days.
“So while pension tax changes might be seen as a clever policy move that wouldn’t attract too much negative attention in former times; now, with workers paying more attention to their retirement pots, any tinkering could be more unpopular than expected.”
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