Advisers warn of 'political storm' if government makes further change to pensions tax reliefs
CHANCELLOR GEORGE OSBORNE’S PLANS to bring forward proposed cuts to pensions tax relief could be in dire straits as advisers threaten a political storm if he upsets the current system.
George Osborne (pictured) is exploring plans to scrap the current tax breaks and offer pensioners no relief while they are paying into their pension but then give tax-free access to savings upon retirement.
The current system sees savers receive tax relief based on their rate of income tax for cash set aside in their pension pot in order to encourage more long-term saving. The money is later taxed when it is withdrawn during retirement, a burden that has impeded the government’s moves to make private sector pensions more flexible.
It had been expected the chancellor would hold fire on the changes until the next Budget, to be held in March next year.
But following the House of Lords’ rebellion over proposed cuts to tax credits, there are now fears Osborne could bring forward the pensions cuts in a bid to plug the deficit.
As a result, advisers are warning savers could rush to make the most of their investments, with as much as an extra £6bn in reliefs being claimed ahead of this month’s Spending Review and Autumn Statement.
“We’re just enrolling millions of people in the workplace into their pension schemes and it would be a huge turn-off for them if they have to trust that, 30 or 40 years from now, some politician who’s probably still in their nappies right now is going to allow them to take that money out free of tax. That’s a big ask,” Royal London chief executive Phil Loney told the Telegraph.
“If he really did choose to scrap tax relief on pensions and move to a different regime, I think he might find himself with the same kind of storm that he’s got around tax credits. It’s that big an issue,” he warned.
Last week, the Confederation of British Industry called on the government to refrain from further changes to the tax regime pensions are subject to, with 79% of members saying pensions tax relief should not be on the agenda.
“Recent regulatory changes, coupled with auto-enrolment and state pension reform, mean UK business leaders now crave stability,” said CBI director of employment and skills Neil Carberry.